Each quarter the federal Canada Revenue Agency (CRA) -- which used to be known as Revenue Canada -- establishes a new prescribed rate on taxable benefits. When the rate is low, it unlocks a dynamic tax effective option if you have a spouse in a lower tax bracket.

Here's how it works: When one spouse loans money to another for investment purposes and does not charge an interest rate at least equal to the going market rate, or the CRA's prescribed rate at the time the loan was made, any resulting income and capital gains are taxed in the hands of the spouse who made the loan.

But, if higher-earning spouse loans money to the lower income spouse and charges the prescribed rate of interest in effect at the time the loan is made, all income and taxable gains are taxed in the hands of the lower income spouse. The lower income spouse also deducts the interest paid -- thus paying tax only on the net amount of investment income.

In order for this to work, the lower income spouse must actually pay the amount of interest owed to the higher income spouse within 30 days of each calendar year-end. The "lending" spouse is then required to report the prescribed interest charged as taxable income.

However, when the return from investment exceeds the prescribed rate, there is a gradual shifting of taxable income from the higher income spouse to the lower income spouse.

The benefit is clear: Over time, if investment returns continue to exceed the cost of the loan, the investment grows at a more effective tax rate. For this strategy to work, it is very important that the borrowing spouse actually pays the interest on a timely basis.

Should interest rates rise, the loan rate need not be increased as long as the original loan remains in place. This "locking in" of the prescribed rate delivers a unique opportunity that can benefit you for years to come.

This page is part of the GayFinance series.