9 - Tax Reduction Strategies Flashcards
Do attribution rules apply to a loan of funds or property to a spouse, minor child
Yes, unless loan is at prescribed rate.
What is attributed back to a spouse if they loan funds for free to spouse, minor child or child over 18.
If to spouse, investment income and capital gains attributed back
If to minor, only investment income attributed back
If to child over 18, only investment income if it is only don’t to avoid tax
Do attribution rules apply if loan is to trust.
Only if spouse or minor children have beneficial interest
Does income attribution apply if you loan to a corporation (other than small business corporations
Yes, if spouse and minor child have direct or indirect interest
How to avoid attribution rules on loans
Use prescribed rate with interest paid within 30:days of end of year
Do attribution rules apply to a gift of funds or property to a spouse
Yes, investment income and capital gains
Do attribution rules apply gift to minor
Yes, but only investment income
Do attribution rules apply gift to child over 18
No
Do attribution rules apply sale to spouse
Not if done at FMV
If done lower, than investment income and capital gains are attributed back
Do attribution rules apply to sale to minor
No, if done at FMV
If done less, than yes but only interest income and not capital gains are attributed back
Do attribution rules apply to sale to a child over 18
No
If attribution rules apply to spouse, do they include capital gains
Always
If attribution rules apply to gif/sale/ loan to minor are capital gains included
Never.
If attribution rules apply to gift/loan/sale to child over 18, are capital gains attributed back.
Never
Benefits of using inter vivo trusts for tax reduction
If done at prescribed rate, no attribution
Transfer assets and still have control
Ability to call back amounts loaned to trust
When can RIF income be split
After 65
What qualified pension income can be split prior to 65
RPP
What income is not considered qualifying pension income for splitting
RRSP withdrawal
OAS
CPP
GIS
How is CPP shared between spouses
Based on contributions made when together. Each share 50%
If getting CPP and QPP both must be shared
One tax reduction strategy is for the higher earner to cover the interest on investment loans, what do you have to watch out for
You can give cash to pay and expense but you have to watch out that you don’t provide collateral, guarantee the loan or pay principal. If the higher income earner does, all will be attributed back to them
Another way of tax reduction is swapping. Explain
Clients swap assets with lower income family member. Ie swap art, jewelry. For tax purposes the swap is considered a deemed disposition
Benefit of using the tax strategy of paying salary to family members
Sole proprietor or partnership Pays spouse salary which is tax deductible to business
Reduces net business income
Spouse contributes to CPP and earns contribution room
How to benefit from paying allowance to working child
You give them allowance so they can use their income to invest, they also accumulate RRSP room
Benefit of making a corporate loan to a related student
Must deal at arms length and be18
If loan not paid by corporate year end, it is taxed to student
Once student graduates, loan can be paid and used as a deduction
Most appropriate if student does not work in company
Company is entitled for deduction for loan
Steps to transfer capital loss to spouse
- X sells shares and triggers loss
- Y buys shares the same shares immediately (within 30 days)
Results. X loss is denied due to superficial loss
Y buys shares lower and loss is added to her cost so greater loss - Y waits 30 days and then sells at a loss, she can use this loss to offset her capital gain.
