Section 74.1

Subsection 74.1(1) - Transfers and loans to spouse or common-law partner


Lipson v. Canada, 2009 DTC 5528, 2009 SCC 1, [2009] 1 S.C.R. 3

purpose of attribution rules: preventing use of related-person status to reduce tax when transferring property/attribution of interest expense

The taxpayer's wife ("Jordanna") borrowed $562,500 from the Bank of Montreal under an interest-bearing demand promissory note in order to purchase some of the shares of a family corporation from the taxpayer for that sum, with the sale proceeds being used by the taxpayer to purchase a family home. The inter-spousal rollover in s. 73(1) applied to this purchase. The next day, a mortgage loan on the home received from the Bank was used to retire the demand promissory note. The taxpayer included in the computation of his income both the dividends on the shares, and the interest expense incurred by her on the mortgage loan, on the basis that the attribution rules in s. 74.1(1) applied.

After stating (at para. 32) that “the attribution rules in ss. 74.1 to 74.5 are anti-avoidance provisions whose purpose is to prevent spouses (and other related persons) from reducing tax by taking advantage of their non-arm’s length status when transferring property between themselves,” Lebel J. found (at para. 42):

As ... the purpose of s. 74.1(1) is to prevent spouses from reducing tax by taking advantage of their non arm's length relationship when transferring property between themselves ..., the attribution by operation of s. 74.1(1) that allowed Mr. Lipson to deduct the interest in order to reduce the tax payable on the dividend income from the shares, and other income, which he would not have been able to do were Mrs. Lipson dealing with him at arm's length, qualifies as abusive tax avoidance ... .

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 245 - Subsection 245(4) policy of spousal attribution rule: cannot exploit spousal status on property transfers 332

The Queen v. Kieboom, 92 DTC 6382 (FCA)

In finding that s. 74(1) applied to attribute dividend income to the taxpayer when he permitted his wife to subscribe for common shares of his private company for nominal consideration, Linden J.A. stated (p. 6386):

"In my view, the phrase 'transfer of property' is used in this provision in a rather broad sense ... The transfer, which in this case was indirect, in that the taxpayer arranged for his company to issue shares to his wife, is nevertheless a transfer from the husband to the wife. There is no need for shares to be transferred in order to trigger this provision ..."

Words and Phrases

Garant v. The Queen, [1985] 1 CTC 153 (FCTD)

The taxpayer and his wife agreed to change their matrimonial regime from community of property to separation of property. Since the partition was a declaration of property rights, rather than a conveyance of property, there accordingly was no "transfer" of property.

Beique v. The Queen, 81 DTC 5050, [1981] CTC 75 (FCA)

Income derived from real property which the taxpayer's wife bought with money he had given her, was attributed to him.

Murphy v. The Queen, 80 DTC 6314, [1980] CTC 386 (FCTD)

Under a court-approved variation of trust, the plaintiff forewent his vested right to receive a ½ share of the income of a trust, and a discretionary trust was created whose beneficiaries included his wife. In the taxation years in question, the trustees of this trust directed that 1/4 of the trust income be paid to his wife, an eventuality which the plaintiff was found to have anticipated. It was held that he had by means of a trust transferred property to his wife, and the 1/4 share of the trust income was taxable as his income.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Property included right to be included in class of discretionary beneficiaries 44
Tax Topics - Income Tax Act - Section 56 - Subsection 56(2) 104

Lackie v. The Queen, 79 DTC 5309, [1979] CTC 389 (FCA)

Payments received by the wife of the taxpayer for gravel removed from land that had been conveyed to her by the taxpayer were found to be payments dependent upon use of the property rather than income from a gravel-selling business. The payments accordingly were "income ... from the property" and s. 74(1) applied to attribute the income to the taxpayer.

Administrative Policy

7 October 2016 APFF Roundtable Q. 19, 2016-0655841C6 F - Reimbursement of attributed income

no domestic secondary adjustment doctrine
Situation 1

CRA assesses Spouse A under s. 74.1(1) on the basis that interest received by Spouse B on transferred funds should be included in A’s income.

Situation 2

Partner B (a corporation) is assessed under s. 103 on the basis that 40% rather than 10% of the income of the LP should have been included in its income (so that the share of Partner A, who is a related individual, should have been 60% rather than 90%).

Situation 3

CRA assesses corporation A under s. 56(2) and s. 69(1)(b) on a capital gain of $99,990 on the basis that it had exchanged preferred shares with a FMV of $100,000 for new common shares with a FMV of $10, thereby shifting value to the other shareholder (individual B) which was then realized by B on a sale to a third party.

Is the income allocated to the other taxpayer in Situations 1 and 2 under ss. 74.1(1) and 103 required to be reimbursed by the taxpayer who received the income – and similarly re Situation 3, is B required to reimburse A for the sale proceeds received by him? CRA stated:

[T]he provisions… not provide for a reimbursement obligation by a taxpayer where a benefit was allocated or when income was attributed to another taxpayer. …

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - 101-110 - Section 103 - Subsection 103(1) no obligation to repay income reallocated to other partner 170
Tax Topics - Income Tax Act - Section 69 - Subsection 69(1) - Paragraph 69(1)(b) excess disposition proceeds not required to be repaid 91

29 June 2016 External T.I. 2016-0642811E5 - attribution rules - spouses

individual purchasing property using funds provided from asset sales by spouse thereby receives a property transfer from spouse

An individual sold shares, with the proceeds placed in a non-registered joint investment account with the individual’s spouse for the purpose of acquiring and holding financial instruments such as bonds and mutual funds. Would capital gains and other income earned in the joint account that is reported by the spouse be attributed back to the individual unless a prescribed loan were made? CRA responded:

In circumstances where one spouse purchases property using funds which are provided solely from the assets or earnings of the other spouse (the "Contributing Spouse"), the Contributing Spouse is considered to have transferred property to the other spouse. It is our view that...any income earned and capital gains or losses realized on the investments by the other spouse from the property transferred by the Contributing Spouse would generally be deemed to be income, gains or losses of the Contributing Spouse and would therefore not be considered to be income of the other spouse. ...

CRA went on to a general descussion of the exception in s. 74.5(2).

S4-F3-C1 - Price Adjustment Clauses

CRA will consider a price adjustment clause to represent pricing at fair market value if:

  • the agreement reflects a bona fide intention of the parties to transfer property at FMV;
  • the purported FMV is determined by method that is fair and reasonable in the circumstances (which does not necessarily entail using CRA's preferred method, nor engaging a valuation expert);
  • the parties agree that a CRA or Court valuation, if any, will supersede the price otherwise determined; and
  • the excess or shortfall is actually refunded or paid, or legal liability therefor is adjusted (para. 1.5).

Price adjustment clauses involving shares may use a number of adjustment mechanisms. CRA non-exhaustively mentions changes in redemption value, the issuance of a note or change in the principle amount of a note, or a change in the number of shares issued - although CRA recommends against using the latter because of inherent legal and technical difficulties (para. 1.6).

19 May 2010 External T.I. 2010-0364131E5 F - Issuance - Discretionary shares

application of Kiebom to consider interest in corp to have been transferred to spouse could engage s. 74.1(1)

Upon the incorporation of Opco, X subscribed for and continued thereafter to hold all the Class A voting participating shares of Opco, whose terms provide for a participating dividend. At that time or thereafter, a Holding company owned by X, or X’s spouse, subscribed a modest amount for Class B non-voting participating shares so that dividends thereon may accomplish a creditor-proofing or income-splitting objective.

CRA noted that it could consider that Opco had conferred a s. 15(1) benefit on the subscriber to the Class B shares if their fair market value was higher than the subscription price. Alternatively, there might be circumstances (referred to in the summary as the situation where “the benefit is conferred by a shareholder rather than by the corporation,” i.e., by X rather than Opco) where CRA would apply s. 69(1)(b) and Kieboom on the basis that X had disposed of an interest in Opco to the Class B share subscriber for the FMV of that interest. CRA then stated:

[I]f X disposed of any right or interest in Opco to X's spouse … we could also argue that the attribution rules in subsection 74.1(1) would apply to reallocate to X any dividends paid on the Class B shares held by X's spouse.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 15 - Subsection 15(1) subscription for discretionary shares of Opco might represent a s. 15(1) benefit conferred by Opco on subscriber, or engage s. 69(1)(b) where this is benefit conferred by existing shareholder 203
Tax Topics - Income Tax Act - Section 69 - Subsection 69(1) - Paragraph 69(1)(b) Kieboom/s. 69(1)(b) rather than s. 15(1) where benefit conferred by shareholder rather than corporation 185

19 April 1995 External T.I. 9431235 - ATTRIBUTION RULES AND RRSP

Where an individual's contributions to his RRSP is funded with cash transferred to him from his spouse, s. 74.1(1) will apply to the amount withdrawn from the individual's RRSP, given that an interest in the RRSP is "property substituted for" the cash.

26 September 1994 External T.I. 9412015 - ATTRIBUTION AND COMMUNITY PROPERTY

Where a person transfers property to his or her spouse prior to becoming a resident of Canada, s. 74.1(1) would apply to any income earned from such transferred property. It is possible that if under the applicable community property laws in a foreign jurisdiction, a spouse acquires a vested 50% interest in each property acquired or owned by the other spouse, the first spouse might be considered to have acquired his or her interest in such property by virtue of the relevant provisions of such law and not to have had the property transferred to him or her.

31 May 1994 External T.I. 9411795 - INTERSPOUSE TRANSFERS AND RRSP'S

Where an individual transfers cash to a spouse for no consideration, the spouse contributes the cash to an RRSP of which she is the annuitant, the spouse claims a contribution deduction under s. 146(5) and later withdraws the money, the total amount received by her out of the RRSP will be income from substituted property and included in the individual's income under s. 74.1(1) and will not be income of the spouse. S.74.1(1) will not apply to income earned on the reinvestment of the amount withdrawn from the RRSP.

93 C.R. - Q. 36

The Act does not provide specifically that attribution ceases when a loan to which s. 74.1(1) applies is repaid. Accordingly, if the loan is repaid with property other than the original property loaned or property substituted, the attribution continues.

8 May 1991 T.I. (Tax Window, No. 3, p. 22, ¶1250)

Where Mr. X purchases real property from his spouse, generates $10,000 of net rental income from the property, but fails to pay the $9,000 of interest which has accrued on the unpaid purchase price within the time provided in s. 74.5(1), the income which is attributed to his spouse will be the net income of $1,000.

4 May 1994 External T.I. 9400825 - ATTRIBUTION RULES

A taxpayer who transferred cash from his wife to assist her in purchasing a property that was subsequently sold by her at a gain was referred to Trinca v. MNR, 51 DTC 91 "wherein it was decided in circumstances similar to yours that only a portion of the gain was attributed".

14 January 1991 T.I. (Tax Window, Prelim. No. 3, p. 12, ¶1091)

"Income from property" for purposes of ss.74.1, 110.6 and 207.5 includes annuity income taxed under ss.56(1)(d), (d.1) and (d.2).

86 C.R. - Q.43

Where the property loaned or property substituted therefor is used to repay a low-interest loan to which s. 74.1(1) applies, there will not be any income from the property loaned to which attribution would apply.

86 C.R. - Q.45

S.74.1 only attributes income from property, and s. 96(1)(f) applies for purposes of determining the source of income received by a partner.


Elie Roth, Tim Youdan, Chris Anderson, Kim Brown, "Taxation of Beneficiaries Resident in Canada", Chapter 4 of Canadian Taxation of Trusts (Canadian Tax Foundation), 2016.

Whether attribution rules apply from a release or surrender (p. 343)

The CRA states m paragraph 1.15 of Income Tax Folio S6-F2-C1 that the attribution rules in subsections 74.1(1) and (2) apply if the taxpayer's spouse or minor children benefit under the terms of the trust as a consequence of the release or surrender of the income interest in the trust by the taxpayer. These rules apply even when the taxpayer does not direct in any manner what person is entitled to benefit in respect of the interest or if the person so designated would be entitled to benefit under the trust in the same manner without the taxpayer's direction. This conclusion appears to be incorrect because neither a release or surrender of the income interest without directing who will benefit therefrom nor the release or surrender of an income interest when a designation or agreement is made in favour of a person who would otherwise benefit under the terms of the trust appears to constitute a "transfer" of property within the meaning of the attribution provisions.

Subsection 74.1(2) - Transfers and loans to minors


Romkey v. Canada, 2000 DTC 6047 (FCA)

Trusts, that were established for the taxpayers' children, subscribed for non-voting common shares of the corporation for a nominal amount. The Court affirmed the finding of the trial judge that s. 74.1(2) applied in the absence of being satisfied that the trusts had paid for the shares issued to them and in light of the broad meaning accorded to the concept of a transfer of property in the Kieboom case.

Sachs v. The Queen, 80 DTC 6291, [1980] CTC 358 (FCA)

The appellant settled a trust and sold shares of a company to his wife in her capacity of trustee. The trust deed basically provided that until the division date in 1991 the trustee could pay some or all of the income and capital to the appellant's children, and that after the division date the children would be paid 1/3 of their share upon attaining 25, and the remainder at 30. In 1975 and 1976 the infant children and the trustee jointly filed preferred beneficiary elections and the children were paid dividends on the shares.

It was held that the appellant had transferred property rights to his children by means of a trust, and the dividends were deemed to be income of the appellant. In the view of Thurlow, C.J., it was irrelevant that in 1975 and 1976 the shares had not yet vested in the infant children, as was the fact that only one of the children had been born at the time of settling the trust.

See Also

Krauss v. The Queen, 2009 DTC 1394 [at 2155], 2009 TCC 597

The taxpayer and her son transferred real estate on a rollover basis to a partnership in consideration for Class A units of the partnership having a redemption value, subject to a price adjustment clause, of approximately $1.25 million for each of them. Several days later, the partnership issued Class C units to a family trust for consideration of $100. In the following taxation year, the partnership earned approximately $343,000, of which approximately $127,000 was allocated to the family trust in respect of the Class C units.

S.74.1(2) applied to attribute the income allocated to the family trust equally to the taxpayer and her son.

Harvey v. The Queen, 98 DTC 1089 (TCC)

Given that minors could not contract and be parties to a proper loan, the taxpayer was found to have transferred funds to his infant children for purposes of s. 75(1) when monies transferred by him to them was evidenced by demand promissory notes signed on their behalf by his wife.

Romkey v. The Queen, 97 DTC 719 (TCC)

Dividends on shares of a family corporation supposedly received by trusts for the benefit of the taxpayer's children were attributed to the taxpayer because (in the case of the initial dividends) the shares supposedly issued to the trust had not yet been fully paid, the taxpayers were unable to establish that the purchase of the shares had been funded out of family allowance payments received by their wives and, because it had not been proven that the shares issued to the trust had a fair market value equal to the nominal subscription price, (which indicated that there was a transfer of property by the taxpayers to their children as a result of the dilution of their share interest in the corporation).

Re Butt (1986), 22 E.T.R. 120 (Ont. Sur. Ct.)

The words "nephews and nieces" in their primary meaning include only those related by blood rather than by marriage. "Nephew" is used only in its primary sense in s. 47(5), Succession Law Reform Act (Ont.)

Words and Phrases
nephew niece

Administrative Policy

8 May 2001 External T.I. 2001-0072705 - Romkey - Estate Freeze

"Subsection 74.1(2) will generally not apply to attribute, to a freezor, dividends paid on shares held by a trust for minor children as part of a typical estate freeze, provided that the shares held by the trust are issued for an amount equal to their fair market value and are paid for with funds that are not obtained from the freezer".

3 March 1995 External T.I. 9427115 - "transfer"? Dad invests $ in "trust" a/c for KIDS

The word "transfer" means to "divest, deprive or dispossess of title". Accordingly, there is no transfer of property to a taxpayer's child where the taxpayer opens up an informal "in trust for" account for the child, contributes funds on a monthly basis to the account to fund the purchase of mutual fund investments, and under the arrangement is permitted to withdraw the investment or a portion thereof for the taxpayer's personal benefit.


Where an individual (the "transferor") has bought units in a mutual fund trust for a related minor, s. 74.1(2) will not attribute capital gains earned by the mutual fund and distributed to the minor to the transferor. In such a situation, the capital gain reported on the T-3 Supplementary issued by the mutual fund trust "is not in respect of a disposition of transferred property but is merely in respect of a transaction or transactions undertaken by the mutual fund that has resulted in a capital gain being generated by that trust."


An allowable business investment loss is a type of allowable capital loss. Accordingly, in a situation where Mr. and Mrs. X are jointly and severally liable for the debts of an operating corporation in which they both own shares, and Mr. X funds the guarantee liability of both by selling marketable securities and giving a portion of the proceeds to Mrs. X who uses those proceeds to honour a portion of the guarantee, the allowable business investment loss that she realizes when she honours the guarantee will be attributed to him only as an allowable capital loss and not as an ABIL. It could not be said that her capital loss for the year on the disposition of the property is also deemed to be his capital loss for the year on the disposition of that property, with the result that he cannot satisfy the requirements in s. 39(1)(c).

25 January 1991 T.I. (Tax Window, Prelim. No. 3, p. 29, ¶1109)

The proceeds of a life insurance policy are "substituted property" for purposes of the attribution rules.

87 C.R. - Q.8

The phrase "relating to any period" means accrued in a period.