Mr. and Mrs. Lee established a spousal loan arrangement with Mrs. Lee lending Mr. Lee $200,000 at the prescribed interest rate of 1% to invest. In the first year, Mr. Lee's investments generated $15,000 in income. What amount of income, if any, will be attributed back to Mrs. Lee under the attribution rules?

Question: Mr. and Mrs. Lee established a spousal loan arrangement with Mrs. Lee lending Mr. Lee $200,000 at the prescribed interest rate of 1% to invest. In the first year, Mr. Lee's investments generated $15,000 in income. What amount of income, if any, will be attributed back to Mrs. Lee under the attribution rules?

Answer options:

• $0
• $2,000 ✅ $13,000
• $15,000

Correct answer: $13,000

Explanation: Under Income Tax Act subsection 74.5(2), if the prescribed interest is paid annually by December 30, only the net income exceeding the interest paid is attributed back. Here, interest payable is $200,000 * 1% = $2,000. So, $15,000 (income) - $2,000 (interest paid) = $13,000 is attributed to Mrs. Lee.