Ch 7 - Non-arm’s Length Transfers, Income Splitting and Attribution Rules

Question 1

A transferring spouse may want to realize a capital gain in order to (3):

Answer 1

• utilize the capital gains exemption;
• utilize capital losses incurred in the current year or in the past;
• realize a capital gain in a year when his or her marginal tax rate is low.

Question 2

These methods are the most common methods used to split income: (4)

Answer 2

1. payment of personal living expenses by higher income spouse
2. spousal RRSPs
3. contributions to surviving spouse’s RRSP by estate
4. registered education savings plan (RESPs)

Question 3

How to avoid the attribution rules, on a loan?

Answer 3

interest rate must be equal or higher to the lesser of the prevailing market rate or the CRA’s prescribed rate in effect when the loan is made.

Question 4

capital gains realized by a minor on property transferred are attributed to

Answer 4

the minor

Question 5

In order to avoid the attribution rules for a minor, the property must be (2)

Answer 5

• sold to the minor at fair value
• child must either pay fair market value cash or transfer other property of equal fair value

Question 6

attribution rule for adult children or related adult (parent, brother, etc..)
1- gifts
2- cap gain or investment income

Answer 6

• no income or capital gains attribution from gifts
• investment income or capital gain is taxable to the transferee and not the transferor

Question 7

Attribution rules mechanism ceases (5):

Answer 7

• upon marriage breakdown
• upon separation
• upon death of transferor or transferee
• upon non-residency of transferor;
• the year of the 18th anniversary of the transferee (unless he or she is the spouse or if transfer consists of a low- or no-interest loan.)