Revisiting Inter-Spousal Loans in a Rock-Bottom Interest Rate Environment
In what seems like a lifetime ago, in February 2018 we outlined the benefits of inter-spousal loans in a feature website article, found here. Our original article was timely because at the time the federal government had announced it was raising the rate at which a high-income spouse could lend funds to their lower-income spouse from 1% to 2%.
As a result of lower interest rate levels in the wake of the pandemic, the government has since reversed that 2018 change and spouses may now once again lend at the 1% rate. Conveniently, our 2018 analysis of the potential benefits of making a spousal loan remains as relevant now as it did then. In the example provided, if the loan were outstanding for ten years, a couple implementing this strategy could potentially save $198,000 in taxes over the term of the loan.
Please reach out if you would like to discuss this income splitting strategy.