Income Splitting for Investors

KNOWLEDGE EXPECTED OF: CFP® Professionals

Highest Knowledge Level: Application

Knowledge Levels and Associated Verbs


Awareness
The state of being aware that something exists / to have familiarity with a particular activity or subject
Understanding
To comprehend the general relationship of particulars / to have an expertise with how something works
Application
Ability to put information to use / to use knowledge for relevant, practical purposes
Evaluation
To judge or conclude by utilizing data / a systematic determination of something’s worth or significance
Define
To state exactly the meaning of
Identify
To be aware of / to recognize and correctly name / to locate an appropriate resource
Explain
To make clear the meaning of / to describe something in more detail or reveal relevant facts or ideas related to it
Determine
To ascertain / to come to a decision, such as by investigation or reasoning
Compare
To note the similarities and differences between two or more things
Estimate
To determine an approximate value for
Calculate
To find the value using mathematics
Convert
To change from one form or purpose to another
Evaluate
To reach a conclusion or make a through careful study
Interpret
To give the meaning of / to construe or understand / to translate orally

Hold cursor over or click on each term to read its definition.


Additional Knowledge Expected of CFP Professionals
  • Define prescribed interest rate. 
  • Explain how the prescribed interest rate must be used when engaging in income-splitting opportunities that require it. 
  • Explain methods by which investors may split income, such as:
    • Investing income in lower-income spouse or common-law partner’s name
    • Transferring capital losses to a spouse or common-law partner
    • Loaning† funds to spouse or common-law partner for investment or business purposes 
    • Gifting or loaning† property to adult child
    • Gifting or loaning property to adult child for the purchase of a principal residence
    • Gifting capital gains-producing property to minor child 
  • Explain the income tax treatment for each income-splitting method.  
  • Determine how each of these factors may impact the suitability of investors splitting income:
    • Marginal tax rate differential between the taxpayer and investor
      • In current year 
      • In future years when withdrawals are made, if applicable
    • Impact on net taxes paid by the taxpayer and investor
    • Income attribution rules
    • Potential impact on government benefits 
    • Potential impact on government-sponsored savings plans, including grants and bonds
    • Potential impact on ownership of assets
    • Potential impact on creditor protection of assets
    • Potential for CRA to deem method unreasonable and used only for tax avoidance under General Anti-Avoidance Rules (GAAR)
    • Cost and fees associated with implementing the strategy to split income

† The loan must be made at the prescribed rate, at a rate that would be agreed upon between arm's-length parties under similar circumstances, and interest paid no later than 30 days after the end of each calendar year in which it becomes payable.