A simple way to save taxes on investment income

Loan those funds to a lower-earning spouse with a 1% interest rate

  1 Premium content image


From the April 2016 issue of the magazine.

  1 Premium content image

investment funds_401Those who invest in non-registered accounts have to pay taxes on dividends, capital gains or income generated from those investments at their marginal rate. That can get expensive if you’re in a high tax bracket. So, rather than forking over all of that money, a higher-earning spouse can loan a lower-earning spouse those investment dollars to put into the market. That way, any investment-related income will be taxed in the lower earner’s hands. Just remember: Your spouse will have to pay you interest on the loan. But the rate is only 1% a year, and get this: There’s no timeline for when the loan has to get paid back, says CPA Allan Madan.

The bottom line: Depending on how well your investments perform and the difference in incomes, giving a low-earning spouse a loan could save you thousands of dollars.

More tax tips here.

One comment on “A simple way to save taxes on investment income

  1. I did this just 2 weeks ago. We have a provincial strip bond that yields 3.821% yield to maturity. It really ends up accruing compound interest of 218% until 2046-December-1 over 30.825 years. Basically, I income taxes on 1% and she pays on the other 6.07%.

    So I am in the 41% income tax bracket but she is in the 25% income tax bracket. The annual income tax savings is about $1,000 a year.


Leave a comment

Your email address will not be published. Required fields are marked *