Jan. 30 Deadline for Interest Owing on Inter-Spousal Loans

If you have lent money to ó or borrowed money from ó your spouse you will want to take note of this Jan. 30 deadline. You have less than a week to collect, or pay, the prescribed rate of interest on your loan, if you want to stay in Canada Revenue Agency's good books.

Inter-spousal loans allow couples to split capital gains and income earned on "property.î The idea is the higher-income spouse lends money to the lower-income spouse, allowing the latter to purchase either real or financial assets. Then, the money earned on the property and the gains on the property's disposal is taxed in the hands of the lower-income spouse, who presumably has a lower income tax rate.

Income splitting is a legitimate strategy and to keep it that way the CRA requires a repayment schedule be put in place at the time of the loan, with an annual interest rate that is no less than the prescribed rate of interest (currently 1%). If the spouse who is doing the borrowing does not stick to the repayment schedule, the CRA does not recognize it as a loan and attributes the earned income back to the lending spouse. So, to be exempt from attribution rules, it is necessary to maintain the structure of the loan.

The borrowing spouse, therefore, must pay the lending spouse the prescribed interest within 30 days of the end of each calendar year, that is, no later than Jan. 30.