Author Topic: Canadian landlords: how do we split income between spouses for tax purposes?  (Read 368 times)

Kambo

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  • Location: British Columbia
Hi all,
My spouse and I or looking to purchase a rental property. We are a single income household, and we are wondering about how rental income would be reported on our respective taxes. Our lawyer recomends us both being on the title for estate purposes.
 I've read varying opinions stating:
A) We would be 50/50 owners and the income would be applied as such.
  Or
 B)100/0 owners due to the down payment being a result of my singular income, and the CRA does not recognize "household income". Therefore all income would be applied to me.

Does anyone have any experience with this single breadwinner situation?
Thanks,
Kambo

rocketpj

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Are you buying it as sole proprietors, or within an LLC?  If it's an LLC set your spouse up with Class B shares, and every once in awhile the directors can decide to distribute dividends to CLass B (or A, or whatever) shareholders.

If your spouse 'does the work' on the property - and you carefully document all the many hours said spouse does relatiing to the property, I see no reason for your spouse not to claim the income.  The key is documentation.

I am a full time property owner, and my wife works elsewhere.  Once in awhile she comes by and helps with some work - painting, drywall whatever.  We always record the time, date and amount she worked, for two reasons:

1.  It gives us legal justification to pay her, in the event that makes sense tax wise.
2.  It provides legal justification to divide the capital gains when we sell, which definitely makes sense tax wise.

If you want to pay your spouse, CRA will ask for proof that your spouse worked on the property and that you aren't just sprinkling to avoid taxes.  As long as you aren't idiots in how you claim the work (i.e. claiming hours while on vacation or while spouse is working 100 hours somewhere else), CRA won't have much ability to dispute your records.  The fact that you have records will protect you.

Prairie Stash

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You can loan the money to your wife so she can buy it. Using this strategy, she can be sole owner and pay all the taxes owed. The current rate is 1% interest on spousal loans. 

https://www.taxtips.ca/personaltax/lend-to-spouse-child.htm
https://www.canada.ca/en/revenue-agency/news/newsroom/tax-tips/tax-tips-2017/interest-rates-first-calendar-quarter-2018.html

To do this correctly she needs to pay you every year. if you skip a payment, the deal is off. Paperwork is very important. You also need to declare the interest income on your taxes.

Inter spousal loans are a terrific way to achieve income splitting. Its basically Option B, but better. I haven't seen it used for rentals, primarily this strategy is applied for stocks (I don't see the difference, someone else might).