Attribution Rules

The attribution rules stop people from reducing family tax by giving or lending property to a spouse, child or other related person in a lower tax bracket. When the rules apply, the income or gains from the transferred property are taxed back in the hands of the person who transferred it.

SPOUSES AND COMMON-LAW PARTNERS

If property is transferred or lent to a spouse, income from the property (interest, dividends, rent) and capital gains on its sale are attributed to the transferor.
Transfers between spouses occur at the transferor's cost (a tax-deferred rollover) unless the transferor elects otherwise.
Attribution ends on divorce or separation (for gains, if the couple jointly elects), or death.

CHILDREN AND RELATED MINORS

Income from property given or lent to a related minor under 18 (child, grandchild, niece or nephew) is attributed back to the transferor until the year the child turns 18.
Capital gains are not attributed for minors, so investments for children in growth assets are taxed to the child.
Canada Child Benefit payments deposited into an account in the child's name are not subject to attribution.

SECOND-GENERATION INCOME

Income earned on attributed income (for example, interest on reinvested interest) is not attributed and belongs to the recipient. Over time, this allows some legitimate shifting.

EXCEPTIONS

Prescribed-rate loans: a loan at the CRA prescribed interest rate in effect when the loan is made (3 percent through 2026), with interest actually paid by January 30 of the following year, avoids attribution. The rate is locked in for the life of the loan.
Fair market value sales: property sold for fair market value consideration, with an election out of the spousal rollover.
Business income: income from a business carried on by the spouse is not attributed (only income from property).
Spousal RRSPs and TFSAs: contributions to a spouse's TFSA are not subject to attribution, and spousal RRSPs have their own three-year rule.
Paying household expenses: the higher-income spouse can pay all household costs while the lower-income spouse invests their own earnings.

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