If funds were lent to a family trust or directly between family members under an income-splitting arrangement, the 2022 loan interest must be paid by January 30, 2023. Failure to do so would cause the income attributions rules to apply to tax the income earned on the funds in the hands of the lender, which would defeat the purpose of the arrangement altogether.
The above type of planning is used more often today to split investment income between family members and in certain situations replaces other conventional strategies that no longer exist under the current Tax on Split Income (TOSI) regime. This was especially true when the CRA prescribed interest rate was at its lowest possible point of 1% between July 1, 2020, and June 30, 2022.
Although the CRA prescribed rate has since risen to 4%, this type of planning could still reduce a family’s tax burden provided it meshes with their investment strategy. There are also other potential income-splitting strategies that can be designed to avoid TOSI.
For additional information, contact your TZR advisor.
The above content is for informational purposes only and is general in nature. It is not intended to be advice. No person or entity should act upon the information above without receiving professional advice after all the facts and circumstances specific to their situation are thoroughly reviewed.