Spousal loans in Canada: how a loan to your partner can cut your tax bill

"Spousal loan" means two very different things, and people mix them up constantly. One is a precise tax-planning move — a loan to your lower-income partner that legally shifts investment income off your higher-income tax return. The other is just lending your husband, wife, or common-law partner money for ordinary life. Both are worth understanding, and both work far better written down. This guide covers the tax version in detail, then the everyday one.

The tax-planning spousal loan, in one paragraph

Canada taxes higher incomes at higher rates. If a high-earning spouse simply gives their lower-earning spouse money to invest, the CRA's attribution rules tax the resulting investment income right back in the high earner's hands — the splitting attempt fails. But the Income Tax Act carves out an exception: if instead of gifting, you lend the money at the CRA's prescribed interest rate and follow the rules to the letter, the investment income is taxed in the lower-income partner's hands at their lower rate. Over years and large balances, the saving can be meaningful.

How it actually works, step by step

1. The higher-income partner lends a lump sum to the lower-income partner — often to a non-registered investment account.
2. Interest is charged at the prescribed rate in effect on the day the loan is made. That rate is then locked in for the entire life of the loan, even if the CRA's rate rises later.
3. The borrowing partner invests the money and earns dividends, interest, or capital gains.
4. Each year the borrower pays the interest owed to the lender — and must do so by January 30 of the following year.
5. The lender reports that interest as income; the borrower deducts it against their investment income and pays tax on the net at their lower rate.

The net effect: the investment return (minus the small prescribed-rate interest) is taxed at the lower-income partner's bracket instead of the higher one. The bigger the gap between the two partners' tax rates, and the larger the invested sum, the more the couple keeps.

The two rules that make or break it

Almost every failed spousal loan fails on one of these two points. Get them right and the strategy holds; miss either and the CRA attributes the income straight back to the lender.

1. Charge at least the prescribed rate — and lock it

The loan's interest rate must be no lower than the CRA's prescribed rate at the moment the loan is made. The reassuring part is that this rate is fixed for the life of the loan: a loan made while the rate is 3% stays a 3% loan even if the prescribed rate later climbs. The frustrating part is the reverse — you generally can't just rewrite an old, higher-rate loan down to today's lower rate. The CRA's position is that amending or refinancing an existing prescribed-rate loan to chase a lower rate doesn't work; if you want the lower rate, the usual route is to sell the investments, repay the original loan in full, and start a genuinely new loan.

2. Pay the interest by January 30 — without fail

This is the one that catches people. For each year the loan is outstanding, the borrowing partner must actually pay the interest owed to the lender by January 30 of the next year. Not accrue it, not net it off — pay it, ideally by a traceable transfer. Miss the deadline in a single year and the exception is lost: the investment income is attributed back to the lender for that year and every year afterward, permanently, for that loan. The only remedy is to unwind and set up a new loan.

A quick example

Suppose the higher-income partner lends $250,000 to the lower-income partner at a 3% prescribed rate. The borrower invests it and earns 7% — $17,500 in a year. They owe $7,500 in interest to the lender (3% of $250,000), paid by January 30. That $7,500 is taxable to the lender and deductible to the borrower, leaving roughly $10,000 of net investment income taxed in the lower-income partner's hands rather than the higher one's. If their marginal rates differ by, say, 20 percentage points, that's about $2,000 of tax saved in a single year — repeating annually while the loan runs. (Illustrative only; your numbers and rates will differ.)

Why the paperwork is the whole point

A spousal loan only exists, as far as the CRA is concerned, if there's a real loan to point to. That means a written agreement or promissory note recording the lender and borrower, the amount, the date, and the prescribed interest rate being charged. Without it, the money looks like a gift — and a gift is precisely what triggers attribution. The document isn't bureaucratic box-ticking; it's the thing that converts "I gave my spouse money" (attributed back to you) into "I lent my spouse money at the prescribed rate" (not attributed). Our guides on charging interest on a family loan and the CRA prescribed rate for family loans go deeper on getting the interest terms right.

The other "spousal loan": just lending your partner money

Not every loan between partners is a tax strategy. Far more often, one partner simply lends the other money for an ordinary reason — covering a debt, buying a car, funding one person's share of a property, or bridging a gap between jobs. There's no prescribed rate to worry about and no January 30 deadline; it's just a loan between two people who happen to be together.

It's still worth writing down, and for a reason that has nothing to do with the CRA: relationships sometimes end. If a couple separates, money that moved between them becomes one of the first things in dispute — was it a loan to be repaid, a gift, or a contribution to shared property? Common-law partners are especially exposed, because they don't get the same automatic property-sharing rules as married spouses in most provinces, so a documented loan can be the clearest evidence of what was actually intended. A short signed agreement that records the amount, the purpose, and the repayment terms protects both partners and keeps a hard moment from getting harder.

Should you use a spousal loan?

The tax-planning version tends to make sense when there's a genuine, lasting gap between two partners' tax brackets and a meaningful sum available to invest outside registered accounts. It's least useful when incomes are similar, when the money would sit in a TFSA or RRSP anyway (those already shelter the income), or when nobody will reliably handle the January 30 payment each year. Because the rules are strict and the downside of getting them wrong is losing the benefit entirely, this is one area where running it past an accountant first genuinely pays for itself. What you can do yourself, easily, is the part everything else rests on: a clear, signed loan agreement.

This article is general information for Canada, not tax or legal advice. Spousal-loan and attribution rules are set out in the Income Tax Act and administered by the CRA; the prescribed rate changes quarterly and the figures here reflect 2026. For your own situation, consult a licensed accountant or tax advisor, and a lawyer for relationship-property questions.