Income Attribution When Spouse Guarantees Loan - ask an

This is a multi-part message in MIME format.
---------------------- multipart/alternative attachment
Hi David,
I have been looking for a definitive answer to this question everywhere but I haven't found one.  I hope you can help.  
1.      If   a husband guarantees a bank loan for his wife, for investment purposes, is the investment income attributable to him or his 
2.      What would the attribution rules be if the principal residence, paid for exclusively by the husband, was registered in the wife's name exclusively and the wife subsequently obtains a loan for investment purposes, secured by the home.  
3.      While it seems that this is an effetive income-splitting strategy if the investment income is attributable to the wife (as I suspect), I would appreciate your opinion on the risk of the General Anti-Avoidance Rules applying in this case.
Thank you in advance,
david ingram replies:
1.     The general rule is that the income is attributed to him if she could not have made the payments without his help.  If she was capable of making the payments and you merely co-signed the loan  because she did not have a good enough credit rating or no credit history, the income would be hers.
2.    You win.  If you have given the house to your wife and she sells it, the profit is tax free.  Any money she makes on the reinvestment of the profit, is taxable to her.  However, anything she makes on reinvestment of the value of the actual house would be taxable to you. Your actual question is the same as the first one.  If she can show that she has the financial resources to pay the loan, it is her profit.  If not, it is yours.
3.   If GATT was applied to you, You would be the first martyr in the country. Highly unlikely but anything is possible.
Remember that profit on profit is always taxable to the recipient.
So if you gave your wife $100,000 and she earned $10,000 the $10,000 is taxable to you.  If you pay the tax, your wife now has $110,000.  Next year, if profit is $11,000, $10,000 is still taxable to you but she pays tax on the $1,000 earned on the first year's $10,000 profit which was paid to her by a third party.
If the next year her $121,000 earned $12,100, the $10,000 on the original $100,000 is taxable to you but the $2,100 profit on her $21,000 is taxable to her.  
As you can see, it gets better every year.
==============================Answers to this and other similar  questions can be obtained free on Air every Sunday morning.
Every Sunday at 9:00 AM on 600AM in Vancouver, Fred Snyder of Cartier Partners and I will be hosting an INFOMERCIAL but LIVE talk show called "ITS YOUR MONEY"
Those outside of the Lower Mainland will be able to listen on the internet at 
Local phone calls to (604) 280-0600 - There is a provincial long distance line as well and old shows are archived at the site.
David Ingram's US/Canada Services
US/Canada/Mexico Tax Immigration & working Visa Specialists
US / Canada Real Estate Specialists
4466 Prospect Road
North Vancouver,  BC, CANADA, V7N 3L7
Calls accepted from 10 AM to 10 PM 7 days a week
Res (604) 980-3578 Cell (604) 657-8451
Bus (604) 980-0321 
[email protected]
Disclaimer:  This question has been answered without detailed information or consultation and is to be regarded only as general comment.   Nothing in this message is or should be construed as advice in any particular circumstances. No contract exists between the reader & the author and any and all non-contractual duties are expressly denied. All readers should obtain formal advice from a competent financial, or real estate planner or advisor & appropriately qualified legal practitioner, tax or immigration specialist in connection with personal or business affairs such as at If you forward this message, this disclaimer must be included."
---------------------- multipart/alternative attachment
An HTML attachment was scrubbed...
---------------------- multipart/alternative attachment--


Trackback URL for this entry:

No trackback comments for this entry.