The prescribed rate is 1% currently, until the end of June, 2009.
So here is what I gather: The higher income earner can loan money to the lower income earner at 1% per year (the interest does have to actually be paid by the lower income earner to the higher earner, and this has to be regulated by a formal agreement). The lower income earner can take that money and invest it, and the investment income will be taxed in his hands, presumably at a much lower rate than it would be for the higher income earner. This can offer interesting tax saving possibilities for couples with significant income disparities.
From what I gather, the loan can be maintained forever at 1%, even if the interest rates rise. Seems like a fabulous deal.
So here is what I gather: The higher income earner can loan money to the lower income earner at 1% per year (the interest does have to actually be paid by the lower income earner to the higher earner, and this has to be regulated by a formal agreement). The lower income earner can take that money and invest it, and the investment income will be taxed in his hands, presumably at a much lower rate than it would be for the higher income earner. This can offer interesting tax saving possibilities for couples with significant income disparities.
From what I gather, the loan can be maintained forever at 1%, even if the interest rates rise. Seems like a fabulous deal.
