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A MoneySense reader wants to give money to his spouse to invest. Can he avoid Canada’s income attribution rules?
You wrote about money that is gifted to a spouse. If that money is used for investing, then the interest may be attributed back to the spouse giving the cash. Did I get that correct? If so, then is there any way to give your spouse money and whatever they do with it is their responsibility?
–Jim
In some cases, Jim, you can give your spouse money to invest with no adverse tax implications. It is important to be aware of the income attribution rules when giving money to non-arm’s-length parties like family members. Let’s look at the spousal attribution rules and different investing scenarios.
When you give money to your spouse to invest, the resulting income may be attributed—meaning taxed back—to the spouse who gave the money. For example:
It is the source of the funds that determines who they belong to for tax purposes. So, in a simple example, if one spouse works and the other does not, the employed spouse cannot simply give the stay-at-home spouse money to invest without the income being taxed back to them.
The same sourcing logic could apply to an inheritance. When a parent dies, they generally leave an inheritance to their child, not the child and the child’s spouse. So, the money belongs to the beneficiary for tax purposes, even if a couple then invests the inheritance in a joint account.
Even if an account is subject to attribution, you could take the income earned and invest it in a second account. If you can distinguish this income from the original source, the so-called second-generation income is not subject to attribution. This could be accomplished by transferring income into a second account, for example.
The problem? Each year, you might only be able to turn a small percentage of the original principal into second-generation income that can go into a new account. Still, over time, these investments could add up.
A more common strategy, Jim, is to spend the higher-income spouse’s salary and save some or all of the lower-income spouse’s salary.
If you can distinguish the source of the funds going into the lower-income spouse’s investment account, this can be a legitimate way to avoid spousal attribution.
It is only taxable income that is subject to attribution. Income earned in a tax-free savings account (TFSA) is not taxable. So, there are no tax issues giving your spouse money to invest in their TFSA.
It generally makes sense to maximize your TFSA contributions before starting to invest in a taxable non-registered account.
The same exclusion applies to registered retirement savings plan (RRSP) contributions. There is no attribution of income that results from giving your spouse money to invest in their RRSP.
A couple can also consider opening a spousal RRSP. The contributions to the account are made by one spouse, but the account is owned by the other spouse. The contributor’s contribution room is used, and they claim the tax deduction. But the account holder spouse takes the withdrawals in the future, paying tax on them.
There is a nuance with spousal RRSPs that if you take a withdrawal and contributions were made in the current year or the two previous years, the income may be attributed to the contributor spouse. The income attribution would be withdrawals up to the amount of the contributions made during the current year and two previous years.
If you want your spouse to invest money in a non-registered account and not have the income attributed back to you, there is the option of a spousal loan. You can loan money to your spouse at the Canada Revenue Agency (CRA) prescribed rate of interest. For the third quarter of 2025, that rate is 3%.
The prescribed rate changes quarterly, but the rate in effect at the time of the loan can be maintained for the life of the loan. (See all prescribed rates on the Government of Canada’s website.)
To use an example with a $100,000 prescribed-rate loan to your spouse, they would have to pay you $3,000 per year of interest. The interest paid by them would be tax-deductible for them, and the interest income received by you would be taxable for you.
If the account earned more than $3,000 per year, it is like the excess income is moved from one tax return to the other, since it would have all been on the original spouse’s tax return otherwise. For a couple of years a few years ago, the prescribed rate was at 1%, and the income-splitting opportunity was compelling. The prescribed rate was higher until recently but has fallen as interest rates have fallen.
At a 3% rate, it may not be a lucrative opportunity to split income with your spouse unless there is a large loan amount and there is a significant difference in income and tax rates between the two of you.
Prescribed-rate loan interest in the first year of the loan is pro-rated. The interest needs to be paid annually by no later than January 30, including for that first year. It can be done electronically or using a cheque, but the key is to make sure it is not overlooked.
The attribution rules are meant to limit a high-income taxpayer from giving money to family members to invest so they can pay less tax, Jim. But spousal attribution does not apply to tax-sheltered accounts other than in the case of spousal RRSP withdrawals taken too soon after contributing.
Although a prescribed-rate loan is an option, whether it is worth doing or saves tax for a family depends on the circumstances. But the key is to stay compliant, as missing an interest payment can nullify the spousal loan arrangement.
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