Investment Tax Strategy– Loaning to your Spouse to Invest

If you have money to invest and your spouse is in a lower tax bracket, it may be a good idea to loan the money to your spouse to invest. It has to be an interest-bearing loan, but the ‘prescribed rate’ is currently 1%. The loan needs to be documented and the interest has to be actually paid by January 30 of the following year. But it could be a good deal for tax savings.

For instance, say you are making $200k per year and are in the 42% tax bracket in Alberta, and your spouse is in a 20% tax bracket. You managed to save $100k for investing. That investment makes 5% return, or $5,000. Normally, you alone would pay $2,100 in taxes. But if you loan that money to your spouse, the total tax bill between you and your spouse will come to $1,220 for a savings of $880. The more the difference in tax bracket percentages between spouses, the more savings there will be.

If this seems like it might apply to you, please give me a call and we can discuss all the factors involved, as well as other tax savings opportunities.