By Gigi Suhanic
National Post
FP Money Section
Saturday, August 21, 2004
Question: You wrote about inter-spousal loans a couple weeks ago. I have some follow-up questions. How do we go about it? Is there a minimum or maximum amount that can be borrowed?
Adrian Mastracci, investment counsel at Vancouver’s
‘fee-only’ KCM Wealth Management, says, "Don't do anything with stocks or bonds. Just loan cash. There's no muss, no fuss. There's no tax ramifications to the lender spouse.”
Answer: Just to recap, loans between spouses are most beneficial when one spouse is in a higher tax bracket.
Generally, the higher-income earner makes a cash loan to the husband or wife who then invests it and pays taxes on the income at a lower marginal rate. The catch is that the borrower must pay the lender interest on the loan. The rate is set each quarter by the Canada Revenue Agency and is currently 2%.
As to how do you go about it, Adrian Mastracci, a financial advisor with KCM Wealth Management in Vancouver, says its relatively simple.
First off, he says, the lender should have the cash available.
"Don't do anything with stocks or bonds. Just loan cash. There's no muss, no fuss. There's no tax ramifications to the lender spouse,” notes Mr. Mastracci.
The lender should write a cheque to the borrower and a promissory note should be written up documenting that one spouse is loaning the other the amount of, for example, $100,000 at 2%. Mr. Mastracci also recommends you keep the cancelled cheque for your records. There are no minimum or maximum rules about amounts that can be loaned.
The 2% will hold until Sept. 30; a new rate ruling for the fourth quarter will be made sometime in the first or second week of September and posted on the CRA website.
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