Winnipeg Free Press - PRINT EDITION

Couple with differing incomes can use tax rules to advantage

  • Print

As you review your income tax return this coming month, you might notice you and your spouse have very different amounts of taxable income. If one of you is below $43,000 taxable and the other is above $87,000 taxable, then read on.

In a situation like this, the lower-income spouse, we'll call him Bob, is paying a much lower rate on investment income. Bob's combined federal and provincial tax rate is zero to 28 per cent on interest income while only zero to 6.5 per cent on eligible dividends paid on any company shares he owns.

On the other hand, Bob's high-income wife, Sally, is paying 43.4 per cent to 46.4 per cent on interest income and 28 per cent to 32 per cent on eligible dividends.

Obvious answer? Claim all the investment income earned by either of them on Bob's tax return.

Problem: This might be in clear violation of Canada Revenue Agency rules, which state the investment income must be claimed by the person who earned it. These are generally called the "attribution rules."


Even if these investments are in a joint account, if most or all of the investment capital came from Sally's earnings, it is Sally who must claim the investment earnings on her income tax return. (Sorry about that.)

Solutions? There are several, and the appropriate one will depend on how much investment capital we're talking about.

Step 1 for a couple in Bob and Sally's situation is for the lower-income spouse to save and invest all of his or her income, if possible. In a perfect situation, the higher-income spouse's income is enough to pay for all family expenses and income taxes, plus make the family RRSP contributions (deductible to the higher-income spouse as contributor, but usually in the name of the lower-income spouse as "annuitant" or owner of the plan), and the TFSA contributions.

The lower-income spouse then accumulates all the non-registered investments in his or her name.

Having made adjustments for any future pension income that might be available to the lower-income spouse, the goals are to try limiting any investment income taxable in the higher-income spouse's name, and in the long run, equalize retirement incomes to limit tax in retirement.

In the wonderful situation where the higher-income spouse has significant non-registered investment capital, whether from savings, exercise of stock options, sale of the business or inheritance, there are two faster strategies.

Immediate relief is available thanks to low interest rates and the CRA returning its "prescribed rate" to just one per cent. This is the rate Sally (the lender) would have to charge Bob or a family trust (the borrower) if she loaned investment capital to invest in his name and thus avoid the attribution rules.

For example, if Sally loans Bob $100,000 to invest, Bob must actually pay Sally $1,000 of interest each year within 30 days of year-end. This $1,000 is taxable to Sally and deductible to Bob.

Bob then invests the $100,000 and earns, let's say, four per cent dividends and a few per cent each year in capital gains by investing in mature company shares.

Do the math over any number of years and you can see the advantage.

The other, slower strategy is for Sally to gift the money to Bob, but she remains responsible for the tax on the investment income earned on the original amount gifted. However, Bob can siphon off the dividends, interest or capital gains earned and invest in an account that will be his forever (at least for tax purposes).

These rules also apply when the lower-income family member is a child or grandchild. Any of these strategies must be done properly, so please consult your professional adviser first.

And remember, spring is just around the corner!


David Christianson, BA, CFP, R.F.P., TEP, CIM is a financial planner and adviser with Christianson Wealth Advisors, a vice-president with National Bank Financial Wealth Management, and author of the book Managing the Bull, A No-Nonsense Guide to Personal Finance.

Republished from the Winnipeg Free Press print edition March 28, 2014 B8

Fact Check

Fact Check

Have you found an error, or know of something we’ve missed in one of our stories?
Please use the form below and let us know.

* Required
  • Please post the headline of the story or the title of the video with the error.

  • Please post exactly what was wrong with the story.

  • Please indicate your source for the correct information.

  • Yes


  • This will only be used to contact you if we have a question about your submission, it will not be used to identify you or be published.

  • Cancel

Having problems with the form?

Contact Us Directly
  • Print

You can comment on most stories on You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

You can comment on most stories on You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

Have Your Say

New to commenting? Check out our Frequently Asked Questions.

Have Your Say

Comments are open to Winnipeg Free Press print or e-edition subscribers only. why?

Have Your Say

Comments are open to Winnipeg Free Press Subscribers only. why?

The Winnipeg Free Press does not necessarily endorse any of the views posted. By submitting your comment, you agree to our Terms and Conditions. These terms were revised effective April 16, 2010.


Make text: Larger | Smaller


Trouba talks about injury and potential for Jets

View more like this

Photo Store Gallery

  • A golfer looks for his ball in a water trap at John Blumberg Golf Course Friday afternoon as geese and goslings run for safety- See Joe Bryksa’s 30 day goose challenge- Day 24– June 15, 2012   (JOE BRYKSA / WINNIPEG FREE PRESS)
  • Two Canada geese fly Wednesday afternoon at Oak Hammock Marsh- Front bird is banded for identification- Goose Challenge Day 3- - Apr 30, 2012   (JOE BRYKSA / WINNIPEG FREE PRESS)

View More Gallery Photos


Are you concerned about the number of homicides so far this year?

View Results

Ads by Google