Attribution rules — income on spousal transfers taxed in your hands
Transfers and loans to spouse or common-law partner
Section 74.1 attributes income (and capital gains on subsequent dispositions) from property transferred or loaned to a spouse back to the transferring spouse, preventing income-splitting through transfers of investment property.
Plain-language explanation
Section 74.1 is the attribution rule that makes spousal income-splitting through simple property transfers ineffective for tax purposes.
What gets attributed back: - s.74.1(1): Income (interest, dividends, rents) from property you transferred to your spouse is attributed back to you — taxed in your hands. - s.74.2: Capital gains on subsequent dispositions of property you transferred to your spouse are attributed back to you.
This applies during the spousal relationship — if you divorce or separate, attribution generally stops for the years you were not cohabiting.
How to legitimately income-split: The prescribed-rate loan strategy is the most popular legitimate workaround: 1. Lend money to your spouse at the CRA prescribed rate (4% in many recent quarters) 2. The spouse invests the loan proceeds and earns investment income 3. Interest on the loan is paid to you by January 30 each year 4. Attribution stops — the investment income earned in the spouse's hands is taxed at the spouse's rate
Income from business: If the transferred property is used in a business run by the spouse, the income may be from the spouse's own effort — not automatically attributed under s.74.1.
Attribution to minor children — s.74.1(2): Similar rules apply to income (but NOT capital gains) on property transferred to children under 18. Capital gains on property given to minor children are not attributed back.
Example
Keith (50% marginal rate) transfers $200,000 in dividend-paying stocks to his spouse Jessica (20% marginal rate). Dividends: $8,000/year. Under s.74.1, Keith pays tax on the $8,000 at his 50% rate. If instead Keith lends at 4% ($8,000 interest/year), and Jessica pays that interest on time, attribution stops.
Amendment history
Significant changes to this provision. Older versions help you understand rules that applied in prior tax years.
Prescribed interest rate rose to 5% in 2024 (from 1% in 2021–2022). The prescribed rate determines the minimum interest for prescribed-rate loans used to avoid spousal attribution. Higher rates reduce the income-splitting advantage of this strategy.
Before
Prescribed rate at historic lows of 1% (2020–2022); prescribed-rate loans very popular
After
Prescribed rate increased; locked-in loans made at lower rates remain valid, but new loans must use the current rate
Common questions
Can I give money to my spouse and have them pay tax on the investment income? +
No — not through a simple gift. Attribution rules (s.74.1) attribute the income and gains back to you. The effective strategy is to lend at the prescribed rate with documented annual interest payments.
What is the prescribed rate for loans? +
CRA sets the prescribed rate quarterly. In 2026 it is 4% (where a loan was made when the rate was lower, that lower rate is locked in for the loan's life as long as annual interest payments are made by January 30). Historical low: 1% in 2021–2022.
Does attribution apply when I give money to my adult children? +
Attribution under s.74.1(2) applies to children under 18 (for income only, not capital gains). Once a child turns 18, attribution stops — no restrictions on giving money to adult children.
Key terms
Related sections
Source: Income Tax Act, RSC 1985, c. 1 (5th Supp.), section 74.1. — Read the official text on Justice Canada
These summaries are for educational purposes only and do not constitute legal or tax advice. Speak with a CPA for advice on your specific situation.