A prescribed-rate loan is an income-splitting strategy where you lend money to a spouse or family trust at the CRA's prescribed interest rate to shift investment income legitimately.
The attribution rules can be sidestepped with a properly documented prescribed-rate loan. You lend money to a lower-income spouse or a family trust at the CRA's prescribed rate, and as long as the borrower pays you that interest by January 30 each year, the investment income earned above the interest is taxed in the borrower's lower-rate hands, not yours.
The rate is locked in for the life of the loan at the rate in effect when it was made, so loans arranged when the prescribed rate is low are especially effective. Strict compliance, a real loan, real interest paid on time, is essential, or attribution applies.
You lend your spouse $200,000 at the 1% prescribed rate to invest. They earn 6% ($12,000), pay you 1% ($2,000) interest by January 30, and the remaining $10,000 is taxed at their lower rate instead of yours.
Our certified accounting firm handles this for businesses and individuals across Canada, at fixed fees with no surprises.
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