A simple way to save taxes on investment income

A simple way to save taxes on investment income

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

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From the April 2016 issue of the magazine.

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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.


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