Income Splitting

Income tax policy, rules, problems, strategy and software. Property and consumption taxes too.
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leoc2
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Re: Income Splitting

Post by leoc2 » 06 Jan 2016 20:59

Quebec wrote:
Payment taxes for lower-income family membersPayments of taxes on behalf of other family members also fall into this category. These payments win not attract attribution since they are not invested (the payment goes to the government), and therefore there is no income which can be attributed back.
(source; not CRA)
I am also interested in finding an official CRA link so that I can pay my wife's income taxes. Can anyone help???

fraser
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Re: Income Splitting

Post by fraser » 07 Jan 2016 16:11

I have been paying my spouses tax for a number of years. No issue.

We set up spousal loans a number of years ago. We do a loan document and it is witnessed. We have done several when the prescribed interest rate was one percent. Our financial adviser keeps track of it. He transfers the interest payable by her to me in mid Jan of each year and provides us with an interest paid/received note that we give to the accountant.

We are now in the process of winding it down a little since my taxable income has dropped substantially. Having multiple demand loan agreements make this easier. Every year we get the loan papers from the box, make any changes, and then agree to the new loan balances.

It really is not a cumbersome process. If it were necessary we could easily transfer the interest payments from one account to another. Our accountant says there are two key things....keep a hard copy loan document and ensure that interest payable is transferred (and seen to be transferred) by Jan 31.

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Re: Income Splitting

Post by SQRT » 08 Jan 2016 09:53

Inter-spousal loan agreements are a tried and true method to split income.

I have considered this over the past few years but haven't done it for the following reasons: her income is already fairly high and further benefit for income splitting diminishes at this level but would require a fairly large loan to make a fairly small impact, I would have to
liquidate stock with imbedded cap gains to effect the loan, my spouse spends her current income on herself and doesn't need any more income for this purpose. Additional tax brackets at the upper income levels makes income splitting more important though, so I should revisit this I guess.

I also pay her income taxes, including the result of pension income splitting.

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Re: Income Splitting

Post by longinvest » 08 Jan 2016 10:01

leoc2 wrote:
Quebec wrote:
Payment taxes for lower-income family membersPayments of taxes on behalf of other family members also fall into this category. These payments win not attract attribution since they are not invested (the payment goes to the government), and therefore there is no income which can be attributed back.
(source; not CRA)
I am also interested in finding an official CRA link so that I can pay my wife's income taxes. Can anyone help???
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BRIAN5000
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Re: Income Splitting

Post by BRIAN5000 » 09 Jan 2016 13:33

Was on a webinar with Brian Quinlan tax guy from Money Saver etc. Agreed that you can pay your wife's tax's but hadn't thought about paying her tax's if they were deducted at work. I asked if I could just write a check to my wife for the amount of tax's deducted at work with no attribution rules. His response was he wasn't sure but said Pigs get Slaughtered Hogs get Fat.
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little bit longer and wish you would’ve sold early - this is just part of the game.” - Frank Zorilla via Abnormal Returns

izzy
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Re: Income Splitting

Post by izzy » 09 Jan 2016 14:14

BRIAN5000 wrote:Was on a webinar with Brian Quinlan tax guy from Money Saver etc. Agreed that you can pay your wife's tax's but hadn't thought about paying her tax's if they were deducted at work. I asked if I could just write a check to my wife for the amount of tax's deducted at work with no attribution rules. His response was he wasn't sure but said Pigs get Slaughtered Hogs get Fat.
I suspect ,at least in theory,you could prepay your spouses estimated tax direct to CRA at the beginning of the year because then it would be the tax deducted by her employer which would be refunded a year later .
But possibly doing so might trigger an audit!
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Re: Income Splitting

Post by BRIAN5000 » 13 Jan 2016 18:21

I must be doing something wrong.

Took last years ufile return removed my wife's income and daughters education and associated deductions ( RRSP etc) and added in my Wifes small DB as if she was retired. Moved $5000 of interest income from my return to hers and $10,000 of dividend income from mine to hers it saved $500, WTF. To do this would require moving $200,000 GIC's @ 2.5% and $250000 Dividend stocks @ 4% to her via a loan. I forgot to include the 1% on my return which she would have to pay me which would make the outcome worse. All this for $500.
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little bit longer and wish you would’ve sold early - this is just part of the game.” - Frank Zorilla via Abnormal Returns

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Peculiar_Investor
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Re: Income Splitting

Post by Peculiar_Investor » 11 Dec 2016 09:14

In another topic
BRIAN5000 wrote:What's the going rate to notarize a loan between my wife and I, just curious, I live a little too far away to just drop in. The lawyer at the last presentation I was at thought $350 was a bargain.
Is there a requirement for a spousal loan agreement to be notarized? My spouse and I have a number of spousal loans that are documented solely by an agreement we've drawn up and signed ourselves.
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ghariton
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Re: Income Splitting

Post by ghariton » 11 Dec 2016 14:23

Peculiar_Investor wrote:Is there a requirement for a spousal loan agreement to be notarized?
I'm not a tax expert. But having a loan agreement notarized can provide evidence of when it was signed, as well as the identities of those signing. Presumably the date might be of some interest to CRA in certain situations.

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AltaRed
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Re: Income Splitting

Post by AltaRed » 11 Dec 2016 14:30

FWIW, but nothing to do with spousal loan agreements, I've had stuff such as RE related documents notarized locally in a range of $25-75. The notary needs to read (speedread/scan) the document enough to believe it is a 'valid' document before signing off. A 1-2 page spousal loan agreement should fall into that range.
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Peculiar_Investor
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Re: Income Splitting

Post by Peculiar_Investor » 19 Dec 2017 08:35

It seems to be common knowledge that income attribution rules do not apply if funds are gifted or loaned to a spouse who then contributes those funds to a TFSA, source: Contributions - Canada.ca
Government of Canada wrote: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
Apparently CRA has deemed it isn't quite this clear, as Park previously posted in another topic
Park wrote:
04 Nov 2017 10:40
http://cawidgets.morningstar.ca/Article ... &id=833324

"Spousal loans: Your spouse can give or lend you money for a TFSA contribution. This amount, together with any contributions made from your own resources, cannot exceed your contribution limit. Loaned or gifted amounts can grow tax-free within your TFSA, and may be withdrawn free of tax. However, if you were to reinvest any of this capital in a non-registered account, it would become taxable under the general income-attribution rules. It's better to use this money for a non-investment purpose, such as a major purchase or to pay down a mortgage. The bottom line is that, if you use money from your spouse to make a TFSA contribution, avoid reinvesting any withdrawn amounts in another, taxable account."
I also found another aticle, Navigate TFSA attribution rules | Advisor.ca, that seems to confirm this viewpoint.
But what if Jeff were to reinvest the withdrawn $10,000 in a non-registered account and subsequently earn income or capital gains from the reinvested amount? Would a tax issue arise in this case?

Yes. According to CRA technical interpretation #2010-0354491E5, the attribution rules apply when money given to a spouse to contribute to a TFSA is subsequently withdrawn. So, since Jeff withdrew from his TFSA the $10,000 Camille gave him, the withdrawal would be subject to the 74.1(1) and 74.2(1) attribution rules. That means, if reinvested, future income and capital gains earned from the gift would be taxable to Camille.
I would however note that the linked CRA technical interpretation #2010-0354491E5 in the above quote does not link to CRA's website but rather a tax interpretation website which states "Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA." and the interpretation is from 2010.
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AltaRed
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Re: Income Splitting

Post by AltaRed » 19 Dec 2017 11:06

This issue has come up elsewhere too.

It makes sense that growth/income earned on money given to a spouse to fund a TFSA does not attribute back to the originator because a TFSA is a tax free account, and it also makes sense that the growth in the TFSA is not attributable back to the originator when withdrawn from a TFSA since it is not taxable income on withdrawal either.

But it makes sense that should the spouse then take the proceeds of that withdrawal and use it to earn taxable income, that attribution rules would apply back to the originator. Perfectly logical in my mind and what I thought it would be anyway. As long as that money isn't used to generate investment income, there is no attribution issue.
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Peculiar_Investor
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Re: Income Splitting

Post by Peculiar_Investor » 19 Dec 2017 11:22

Yabbut as I quoted directly from the CRA page on TFSA contributions,
Peculiar_Investor wrote:
19 Dec 2017 08:35
It seems to be common knowledge that income attribution rules do not apply if funds are gifted or loaned to a spouse who then contributes those funds to a TFSA, source: Contributions - Canada.ca
Government of Canada wrote: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
CRA doesn't make any specific qualification that there could be cases that attribution goes back to you. I suspect most Canadians would stop at this point and accept as fact there is no attribution.

For those of us that help out spouses and/or adult children to fund their TFSA, this could be a concern down the road and absolutely a nightmare should CRA pursue it, since I suspect no one would have record keeping of details that CRA might want.
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Re: Income Splitting

Post by kcowan » 19 Dec 2017 12:25

I can see the slippery slope. I gift $5500 to my grand-daughter for her TFSA. 3 year later, she withdraws the money and invests in equities, CRA wants to attribute it back. But wait, in the intervening 2 years, her father gave her the money and then her other grandpa gave her another deposit. Attribution rules were not made for this.

(I see this as a worry for accountants and not for real people.)
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AltaRed
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Re: Income Splitting

Post by AltaRed » 19 Dec 2017 12:31

kcowan wrote:
19 Dec 2017 12:25
(I see this as a worry for accountants and not for real people.)
Most likely but who knows where CRA may spread their tentacles in the future? They surely did not get any offshore tax evasion convictions out of the 78 both CRA and our esteemed National Revenue Minister are bragging about. And even that 78 count is bogus given each transgression is counted and thus not individuals. Pretty pathetic, but they say lots of cases are in the pipeline. We shall see.
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Re: Income Splitting

Post by kcowan » 19 Dec 2017 12:47

AltaRed wrote:
19 Dec 2017 12:31
Pretty pathetic, but they say lots of cases are in the pipeline. We shall see.
Maybe they are just assigning the underperformers to me? My first audit was in 1978 and my latest was 2016. The quality is comparable but slightly lower now. And I noticed a definite slippage between 2015 and 2016. YMMV
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