Joint investment account and taxation....

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robertro
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Joint investment account and taxation....

Post by robertro »

My wife and I hold a joint investment account with a portfolio of equities and funds. For convenience, since our incomes and contributions have been similar, for tax purposes, we just split the proceeds down the middle.

Our incomes have diverged this year, so that we will fall into different tax brackets. Can we redistribute the assets/proceeds so that more are allocated to the lower-taxed person - eg 70/30 vs 50/50? Would we have to move from a joint account to two accounts? Would we have to actualize gains/losses? Did not see anything related to this on CRA site.
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AltaRed
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Re: Joint investment account and taxation....

Post by AltaRed »

How a joint account is split between 2 individuals is directly proportional to th contributions made by those individuals. It should be supported by evidence of contributions should CRA come calling. If you have been contributing 50/50 all along, it is best to keep that joint account going forward at 50/50 to avoid red flags to the CRA, though it is theoretically possible to inject new money into the joint account in a different proportion as long as you keep the new investments recorded in the same proportion as the contributions. That makes for a difficult spreadsheet keeping all these records straight.

The best solution (with no tax implications) is to have two JTWROS accounts, one with your name first and one with your spouse's name first, whereby all the assets in the first joint account are attributable to you and similarly all the assets in the second joint account are attributable to her. Then it is easy to keep track of who has contributed what over the years, for yourself and CRA.

My spouse and I did that years ago and operated for 2 decades that way. Your brokerage should have no issue based on a 'Letter of Direction' signed by both you and your wife to split all existing assets 50/50 into these accounts (the existing one, and a new one with the other spouse named first). I would phone the brokerage first to tell them what you want to do and they should be able to give you specific guidance, e.g. completing one new account application and sending a Letter of Direction telling them exactly what to move into the new account. Then you are set for life.

Added: There are no tax implications since you are simply moving your assets to your joint account and moving her assets to her joint account. IF CRA should ever ask because of differences they may catch on T5s, your response is simple.... separating his and hers to make it easier for everyone involved - no asset transfers between individuals involved.
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kcowan
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Re: Joint investment account and taxation....

Post by kcowan »

You will need to have proof that you contributed or she withdrew a portion of the equity to substantiate the change. I had this problem over ten years ago and had spouse withdraw money to pay living expenses. You could do it in this case.

(In those days, I included the calculation in the submission. I think now you would just have to be prepared to supply it. We kept the joint account for many years and had no trouble with the CRA.)
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robertro
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Re: Joint investment account and taxation....

Post by robertro »

Thank you for the excellent feedback! I had read that monetary gifts within a family were tax-free, except when they were not :roll:

We've had some minor cash withdrawals by the higher-taxed spouse to pay expenses and (later in the year) deposits by the same spouse. A quick calculation suggests that these change the picture from 50:50 to appx 53:47. Not very dramatic.

I'll have a look at creating two accounts as suggested....thanks again.
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Re: Joint investment account and taxation....

Post by SQRT »

robertro wrote:Thank you for the excellent feedback! I had read that monetary gifts within a family were tax-free, except when they were not :roll:
Tax free yes, but income attribution rules will apply for spouses and minor children. We have done as Altared suggests. Joint accounts but each solely funded by one spouse works fine. Order of names good for convenience but not strictly necessary.
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Springbok
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Re: Joint investment account and taxation....

Post by Springbok »

SQRT wrote:
robertro wrote:Thank you for the excellent feedback! I had read that monetary gifts within a family were tax-free, except when they were not :roll:
Tax free yes, but income attribution rules will apply for spouses and minor children. We have done as Altared suggests. Joint accounts but each solely funded by one spouse works fine. Order of names good for convenience but not strictly necessary.
We too opened separate accounts while we could still justify 50/50 split and attribution. Now with different RRIF withdrawals, one account would grow faster than other, so we use that account for living expenses and keep balances about same. With income splitting kind of wasted effort really.

I know of many many couples who just split everything 50/50. Some of them because they always have and don't know what attribution is! And others that do know and in some cases are accounting pros! Feeling is that CRA really don't bother with couples unless they are into megabucks and these couples could likely justify equal contribution anyway if they had to. CRA probably don't want to contest the contributions of a non-working spouse!
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Re: Joint investment account and taxation....

Post by SQRT »

My spouse pays tax on her account and I pay on mine. Her income once we split my eligible pension just about gets to max marg rate, so further income splitting of little use. Interesting that the benefits of income splitting decrease as the lower income increases. Most of the maximum $15,000 or so yearly benefit of income splitting occurs at lower levels. I agree many (most?) people don't understand income attribution rules. Pretty simple though.
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Re: Joint investment account and taxation....

Post by Goodgenie4u »

Our policy when we got married was my wife save all her income, as she wanted to stay home to raise our kids till school going age and then go back to work. The taxes she paid, I used compensated her in a spousal RSP. She had no employer based pension. We had and still have joint accounts, except reg RSP and TFSA. I went crazy doing our taxes trying to figure out what percentage was mine and what was hers. Now a senior I decided to break out all her assets. She insisted on not risking them, so most are low yield savings. In 2016, T'5's with her name an SIN and others with my SIN will be the going forward arrangement. Both are joint accounts. It is the SIN that is the basis of the T5 slip.

Now that we have cash flow from CPP OAS and my DB pension, she wants to invest 50% of her money in dividend stocks that over time protect her invested capital and generate tax credits on dividends and gains /loses. The two joint accounts will allow us to pick the stocks that suit our investment preferences, rather than mess up this in one account.
The key is to ensure that ACB's are well managed for both accounts so that gains and losses do not get messed up and gets the CRA's machine's shorts in a knot. :D
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strathglass
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Re: Joint investment account and taxation....

Post by strathglass »

AltaRed wrote: 18 Dec 2014 13:15The best solution (with no tax implications) is to have two JTWROS accounts,
Can someone explain why the joint account is required? What if my spouse and I each have our own non-registered investment accounts, but not JTWROS...how does this differ? Can I not simply name my spouse as the beneficiary for the (non-JTWROS non-registered) account and avoid the taxes all the same?
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AltaRed
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Re: Joint investment account and taxation....

Post by AltaRed »

I know of no instance where you can name a beneficiary to a non-reg brokerage account. Maybe some bank accounts but I have not seem them. Note that if your Will leaves the assets to spouse, spouse can still make an election to accept transfer at original ACB. No cap gains taxes involved.

The point of the JTWROS accounts with spouse is to have seamless transfer of assets quickly and outside of probate.
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