Tax Alerts
Income Splitting Just Became More Attractive
March 11, 2009
In the 2009 – 01 edition of The Tax Factor, we discussed the income splitting possibilities that exist due to the current low interest rate environment, and in particular, the concept of making a low-interest “prescribed rate loan” to low-income family members. Where loan interest is charged at the prescribed rate in effect when the loan is made, the proceeds of that loan can be used by the family member to acquire an income producing property without income attribution worries.
We are pleased to report that the prescribed rate has fallen even further since we wrote the original article (the Canada Revenue Agency announced recently that the prescribed rate will be 1% for the second quarter of 2009). Therefore, you will be able to loan funds to a low income family member for income splitting purposes, and charge interest at only 1% provided that the loan is made after March and before July (and possibly beyond, provided the prescribed rate does not increase).
If you have already set up a prescribed rate loan, it is possible to unwind the original plan and re-loan funds to the low-income family member at the 1% rate. Keep in mind that there is more to this than simply reducing the interest rate on an outstanding prescribed rate loan to 1%, so consult with your BDO advisor before proceeding.
Here’s a link to our original article, which discusses how income splitting and prescribed rate loans can reduce your taxes.
This is the time to ensure you have maximized the benefits of income splitting. Ask your BDO advisor for more information, and to recommend an income splitting plan that works for you!
