The attribution rule is a rule applied against a taxpayer when it is decided that income taxes aren’t paid by the proper party. In other words, it’s a way for the government to tell you, you are diverting taxes which is a big no-no. Even when it’s done legally as many corporations do through international setup, the government still doesn’t like tax avoidance.
From a personal investor perspective, the rule is in place to prevent higher income earner to give money to children or others that have a lower tax bracket in order to save on income tax.
Attribution Rule between Spouses
Another example can be the transfer of a property to your spouse. The transfer, outside of your principal residence, would trigger a capital gain on the property for the purpose of the transfer. Since your spouse has a different marginal tax rate based on the respective income, the gains would be taxed under your income.
The attribution rule can be quite complex when moving money around a family with relatives and children. The more assets you have, the more interested the government will be in the movement to ensure it’s all legal.
Attribution Rule With Respect to Minors
In my case, I have setup my children with shares of a couple companies with Computershare and all the dividends they earn are taxed under me until they become major. At that point, it will be theirs and they can pay their own income taxes.
Child tax benefit & The Attribution Rule
The child tax benefit is one of the occasions where you can invest it in your children’s name without any attribution rule coming into play. If, however, you are not receiving the child tax benefit, any investments is taxed in your name and not the child.
The trick with the Attribution Rule is that it can be left a little open to interpretation and it’s really important that you discuss with your accountant to make sure what you are doing is compliant with the CRA.