Corporate attribution rule (s. 74.4)

Owners can meet this rule when they move shares or lend money to a corporation, such as a holding company, as part of family income splitting. Under subsection 74.4(2), if one of the main purposes of the transfer or loan may reasonably be considered to be to reduce the individual’s income and to benefit a designated person, the individual may be deemed to receive interest. The rule has several conditions, including that the individual was resident in Canada and the corporation was not a small business corporation.

Exceptions to read

Subsection 74.4(4) says the purpose of benefiting a designated person is not found in certain trust arrangements that meet the conditions listed there. Subsection 74.5(4) provides that no amount is included under 74.4(2) for a spouse or common-law partner for any period the individual lives separate and apart because of a breakdown of the relationship. These are only some of the limits, so read both sections. The wider attribution rules are a separate entry.

What to ask

• Is the person who benefits a designated person under section 74.5(5)?
• Was it a transfer or a loan, and what did the individual receive in return?
• Was the corporation a small business corporation at the relevant time?
• Do the exceptions in section 74.4(4) or section 74.5 apply?