29 April 1994 T.I. 933662 (C.T.O. "Attribution Rules")

Where an individual (the transferee) has acquired an income-producing property from his spouse and given to the transferor a demand promissory note bearing interest at the prescribed rate in effect at the time of the transfer, a subsequent lowering of the interest rate to the prescribed rate in effect at the subsequent time would result in the condition in s. 74.5(1)(b)(i) no longer being satisfied. Accordingly, the attribution rules would apply in respect of the property from the time of the resetting of the interest rate.

If, instead, the promissory note was forgiven, the requirement in s. 74.5(1)(b)(i) would no longer be satisfied.

Where an individual (the transferee) has acquired an income-producing property from his spouse (the transferor) in consideration for a demand promissory note bearing interest at the prescribed rate in effect at the time of the transfer, a subsequent agreement of the transferor to make a loan to the transferee at the lower prescribed rate prevailing at the time of the loan, with the loan proceeds being used to repay the demand promissory note, would not result in the exception in s. 74.5(2) being applicable because the proceeds of the loan would be used to repay the note rather than to generate any income or produce gain.