Tax Attribution Rules

To prevent the arbitrary splitting of income between individuals who do not deal at arm’s length, the Income Tax Act includes attribution rules. These rules basically attribute back to the transferor any income earned on property which is transferred to a non-arm’s length person.

Gift & Loan Attribution Rules

  • Any income or loss from property transferred either directly or indirectly to or for the benefit of a spouse or common-law partner or someone who subsequently becomes your spouse or common-law partner, is considered to be the income of the transferor, not the transferee, unless spouses are living apart and are separated by reason of marriage breakdown.
  • Transfers of property to or for the benefit of a person who was under age 18 (and with whom the individual does not deal at arm’s length) at the time of transfer will result in the income or loss from the transferred property being deemed the income or loss of the transferor until the transferee reaching age 18.
  • If money is withdrawn from a spousal RRSP or RRIF in the same year the contribution was made or within the following two calendar years, the income received will be attributed to the spouse who made the contribution, not the owner.

It is important to point out that the attribution rules are not applicable in the event of divorce, or if either spouse becomes a non-resident of Canada or dies. The rules are also not applicable if the owner commences minimum payments from a Registered Retirement Income Fund (RRIF). Therefore, if the owner/annuitant of a spousal RRSP converts to a RRIF and commences income on a minimum RRIF payment stream, there is no attribution of the income to the contributor.