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To prevent the arbitrary splitting of income between individuals who do not deal at arm's length, the Income Tax Act includes attribution rules. These rules basically attribute back to the transferor any income earned on property which is transferred to a non-arm's length person.
Any income or loss from property transferred either directly or indirectly to or for the benefit of a spouse or common-law partner or someone who subsequently becomes your spouse or common-law partner, is considered to be the income of the transferor, not the transferee.
Please note the exception to the Attribution Rules occurs if the spouses are living apart and are separated by reason of marriage breakdown. They can then jointly elect, in the year of separation, not to have the attribution rules apply.
Transfers of property to or for the benefit of a person who was under age 18 (and with whom the individual does not deal at arm's length, or who is the individual's niece or nephew) at the time of transfer will result in the income or loss from the transferred property being deemed the income or loss of the transferor, not the transferee.
This means that if you give a GIC investment to your spouse, you must report the interest. If you give it to your 9-year-old daughter, you must report interest received until she reaches age 18.
Attribution will also apply to certain transfers and loans made to a corporation, other than a small business corporation. Usually, where the estate planning objectives are other than income splitting among family members, can be structured to avoid the existing corporate attribution rules.
Where attribution does not apply, a special income-splitting tax applies to certain types of income received by minor children, including: