David, 60, lent $50,000 to his wife, Lisa, 58, at an interest rate of 1% per annum. Lisa used the funds to invest in a portfolio that generated $4,000 in investment income this year. David's prescribed rate was 5% when the loan was made. How much, if any, of this income is attributed back to David?

Question: David, 60, lent $50,000 to his wife, Lisa, 58, at an interest rate of 1% per annum. Lisa used the funds to invest in a portfolio that generated $4,000 in investment income this year. David's prescribed rate was 5% when the loan was made. How much, if any, of this income is attributed back to David?

Answer options:

• $0
• $500
• $2,000 ✅ $4,000

Correct answer: $4,000

Explanation: Since the interest charged on the loan (1%) is less than the prescribed rate at the time the loan was made (5%), the attribution rules apply. Therefore, all $4,000 of the investment income earned by Lisa is attributed back to David.