Personal Income Tax -> Wills and Estates -> Gifts and Inheritances
Attribution Rules re Gifts, Transfers, or Loans to a Spouse or a Related Minor Child
Income Tax Act s 74.1(1), s 74.1(2), s 74.2(1), 74.5(2), 74.5(12)
If income-producing property, or money which is used to purchase income-producing property, is transferred or loaned to a related minor, either directly or indirectly, or by means of a trust, the income from the property will normally be attributed back to the person giving the gift or loan. The capital gains from the property will be considered capital gains of the minor.
A related minor, for purposes of the attribution rules, is a child who is under 18 years old and does not deal with the individual at arm's length, or is a niece or nephew of the individual.
If income-producing property, or money which is used to purchase income-producing property, is transferred or loaned to a spouse or common-law partner, either directly or indirectly, or by means of a trust, the income and capital gains from the property will normally be attributed back to the person giving the gift or loan. When spouses have a joint investment account, the income from that account should be claimed by each spouse based on their contributions to the account. If the contributions are made 50% by each spouse, then the split will be 50/50. It is necessary to have records that will substantiate the contributions by each spouse. See our information on joint accounts in our article on How to Minimize Probate Fees.
You can gift or lend money to your spouse or common-law partner to contribute to their TFSA, and there will be no attribution back to you
- while the funds are held in the TFSA, and
- to the extent that your spouse does not, at the time of the contribution, have an excess TFSA amount.
As confirmed by the Canada Revenue Agency (CRA) Technical Interpretation (TI) 2010-0354491E5, the exception to the attribution rules "no longer applies when the transferred property (or any substituted property) is withdrawn from the TFSA. When the spouse immediately withdraws the transferred property from the TFSA, it is our view that the withdrawn amount is a "substituted property". Consequently any subsequent income and taxable capital gain earned on this substituted property would be income and taxable capital gain of the individual." Although the TI uses the word "immediately", the Income Tax Act is specific in indicating that the attribution rules do not apply only when the funds are held in the TFSA.
The CRA information on TFSA contributions, states "You can give your spouse or common-law partner money to contribute to their own TFSA without having that amount, or any earnings from that amount being attributed back to you, but the total contributions you each make to your own TFSAs cannot be more than your TFSA contribution room."
It would be helpful if CRA's information also indicated that once the funds are withdrawn, the amount gifted to the spouse would then be subject to attribution rules.
The attribution rules do not apply to a spousal contribution to a Registered Retirement Savings Plan (RRSP), to the extent that the contribution is deductible in computing the income of the contributor. However, if the contributions are withdrawn within 3 years (with certain exceptions), the withdrawal will be taxed in the hands of the contributor.
The Income Tax Act does not have the same wording for spousal RRSP contributions as it does for funds gifted to a spouse for a contribution for a TFSA. It does not indicate that the exception to the attribution rules will only apply when the funds are held in the spousal RRSP, so there should be no attribution when the funds are withdrawn after the 3 year period.
The attribution rules specifically exclude Canada Pension Plan pension split with a spouse from being attributed back to the originating spouse.
Pension Splitting on the Tax Return
When pension splitting is done on a tax return, it is likely that the lower income spouse will have a refund of the income tax deduction that is also split in relation to the pension. S. 153(2) of the Income Tax Act states that the tax withheld in relation to the split-pension amount is deemed to have been deducted or withheld on account of the pension transferee's tax and not on account of the pensioner's tax. Thus, the tax refund will not be subject to attribution. See the following pension splitting example re an Ontario senior:
- Spouse A receives $80,000 of eligible pension income, no other income.
- Spouse B receives no income.
- On their tax returns, spouse A splits with spouse B the $80,000 pension income and the $17,400 of tax that was withheld from the pension.
- This results in a $4,166 refund of tax to spouse B, which spouse B can use to invest without the income from the investments being attributed back to spouse A.
- Since spouse B has no income other than the $4,166 of tax refund, they cannot invest more than this without the income from the investments being attributed back to spouse A.
In transfers to a related minor or to a spouse or common-law partner, any income earned from the original income (secondary income) will be considered income of the minor or spouse. An example would be where dividend-producing shares are transferred to a minor or spouse, and dividends are used to purchase more shares. The dividends from the additional shares would be income of the minor or spouse.
The attribution rules do not apply to loans where interest is charged at a rate at least equivalent to the specified rate of interest. See our income splitting article on lending to a lower-income spouse or child.
If you have gifted investments to someone else by means of an in kind transfer, this transfer will not be on the tax documents provided by your brokerage. The brokerage will issue a T5008 and a trading summary showing your purchases and sales of investments in your non-registered account, to help you prepare Schedule 3 of your tax return. For some reason, in kind transfers are not shown on these documents. You are still required to report these disposals on Schedule 3 if they are in kind transfers to your registered accounts, or to someone else's account.
Canada Revenue Agency (CRA) ResourcesIT511R Interspousal and Certain Other Transfers and Loans of Property (Archived)
Revised: May 02, 2020
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