Don’t Get Caught Up in the Tax Attribution Trap

Canada tax trap

Sometimes tackling your tax obligations can put you in a situation where knowing a little can get you into more trouble than not knowing anything. You may have some basic understanding about some tax matters like transferring property so you can lower your tax obligations, but you don’t have enough knowledge to know that this type of action could make you subject to the attribution rules, and not following these regulations could get you into some tax difficulties.

The best rule you can set for yourself is if you are going to implement any type of tax planning strategies is to do it under the guidance of an experienced accountant. These professionals know the rules that govern tax planning, and the proper procedures and filing that keeps them legal.

What the attribution rules are is simple rules that can cause property that was transferred to another person to be assigned back to the original person. This can be applicable to both direct transfers of property or those done through a trust, with the exception of testamentary trusts.

There are several rules that come under the attribution regulations and they can be very complex.

One of the common rules in this category that gets really complex and confusing is applicable to subsection 75(2) of the income act. This particular rule can apply to three different types of situations.

Aside from trusts, the attribution rules cover a whole gambit of other situations. Merely transferring property between spouses can be another circumstance. Having an understanding of arms length transactions is important. This is where the services of your accountant plays an important role, and it is far more beneficial to you to seek out this expert’s help before you go ahead and transfer any of your properties thinking it may give you a potential tax benefit.

These rules can even apply to loans to your spouse or other family members but there are some occasions where attribution rules will not be applicable in these types of circumstances.

If you are looking for ways to divert your income so you can reduce your tax obligation then this takes carefully planned tax planning. If not done right there are so many rules and regulations that you could potentially end up breaking that it can put you in a bad situation with the tax department. More often than not tax payers will take steps to reduce their taxes in what they think is a legal course of action without realizing that they may be breaking some very important tax rules and regulations.


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Sam Seidman, CPA, CA, LPA
629 Sheppard Avenue West
Toronto, Ontario
M3H 2S3

Telephone: (416) 398-1700
Fax: (416) 398-6226

Chartered Professional Accountant, Chartered Accountant, Licensed Public Accountant


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