Spouses might be able to access the lower prescribed rate for s. 74.5(2) by simply refinancing their interspousal loan

Where spouses have avoided the application of the income attribution rules through a demand loan made at the prescribed rate from one spouse to the other in reliance on s. 74.5(2), they may now wish to take advantage of the reduction in the prescribed rate from 2% to 1%.

An approach which is simpler and less costly than a sale of the income-producing asset in question and the new loan being made once the sale proceeds have repaid the original loan, is for the one spouse to make a loan at the 1% prescribed rate to the other spouse, with the other spouse using such proceeds to repay the original loan. However, according to an old Interpretation (9336625) the new loan in this latter scenario would not be used for an income-producing purpose, but rather for the purpose of extinguishing the original loan, so that the new loan would not be described by the s. 74.5(2) safe harbour. However, it is suggested that this position does not reference s. 20(3), and may be incorrect.

Neal Armstrong. Summary of Michael Goldberg and Vincent Didkovsky, “Refinancing Prescribed-Rate Loans Used for Income Splitting,” Canadian Tax Focus, Vol. 10, No. 3, August 2020, p.2 under s. 74.5(2).