Spouses and stocks: Is there a way to avoid tax when transferring assets? (2024)

Advertisement

Ask a Planner

By Jason Heath, CFP on May 17, 2018
Estimated reading time: 4 minutes

By Jason Heath, CFP on May 17, 2018
Estimated reading time: 4 minutes

Beware of spousal attribution.

Advertisement

Spouses and stocks: Is there a way to avoid tax when transferring assets? (1)

(iStock)

Q:I have a non-registered discount brokerage account containing stocks and mutual funds. If I wish to open a joint brokerage account in both my and my wife’s name, so my wife would have access to the assets, would there be any tax implications if I transfer all my assets into the joint account?
–WD

A:Some spouses ensure all their accounts are joint. Others maintain mostly separate accounts and even manage their finances quite separately. It’s not uncommon for a point to come where spouses wish to make individual accounts into joint ones, often for estate planning and administration.

Ask a Planner: Leave your question for Jason Heath »

If you open a joint account and transfer the stocks and mutual funds in kind – as is, without selling them – there will be no immediate capital gains tax implications. That is, it’s not like you sold them. The default implication of a transfer of a capital asset like a stock or mutual fund to a spouse is that it happens at its tax cost, such that your cost would become your spouse’s tax cost for capital gains purposes.

READ:These three people moved out of Toronto. How much does it really cost to move out of the city?

However, if you transfer capital assets to your spouse, whether to a joint account or to them personally, attribution will generally apply. Spousal attribution causes income or capital gains to be taxed back to the contributor spouse–you in this case, WD. So, the result may be that future dividends, interest, distributions and capital gains all end up back on your tax return. So, though the transfer may happen at cost, with no immediate capital gains tax payable, when you sell, capital gains will be attributed back to you and taxed on your tax return.

You may be OK with this outcome, as it sounds like the intention here is to give her “access,” so it’s a case of administration or estate planning and not tax driven.

Sometimes, when spouses have individual investment accounts, I suggest they add each other onto the accounts as joint with rights of survivorship. This assumes they want the account to go to their spouse on their death anyway. To properly identify the taxation of the accounts, your account, WD, might be named with your name and Mrs. WD’s, while your wife’s account might be named Mrs. WD and with your name. You would know that the for tax purposes, your accounts would go to the first named on the account.

If you wanted the resulting investment income to go to your spouse, there are ways to accomplish this as well. You can consider a spousal loan at the CRA prescribed rate of interest, which is currently 2%. You would effectively loan your wife money at 2% interest, which she would have to pay you every year by January 30 for the previous year’s accrued interest. You would claim the interest as income, she would claim the interest as a tax deduction, but the investment income exceeding 2% interest would effectively be shifted from you to your wife. If you’re in a much higher tax bracket than your wife and have a lot of taxable investments, this could be worth considering.

MORE:Invest in your spouse’s name to save on taxes

Some families take it a step beyond a spousal loan strategy and establish a discretionary family trust. A trust is a legal relationship between a settlor, who establishes a trust, trustees, who manage the trust, and beneficiaries, who benefit from the trust assets. It is established by a trust deed prepared by a lawyer that could cost up to $5,000 or more in legal fees.

Sometimes, spouses may consider a trust instead of a spousal loan if there are significant non-registered assets and there are other family members like children or grandchildren for whom they want to use or allocate the trust income. A properly established discretionary family trust may allow someone with a high income to legitimately split income with lower income dependents.

It’s not uncommon for people to open joint accounts or add spouses or children to an account without properly considering the tax, family law or estate planning consequences. I think it’s important to be aware of the implications to ensure it’s what you want and nothing adverse results. In your case, WD, it sounds purely administrative. Just make sure the investment income is properly reported on your tax return after the change.

Ask a Planner: Leave your question for Jason Heath »

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto, Ontario. He does not sell any financial products whatsoever.

About Jason Heath, CFP

Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products whatsoever.

Comments

  1. My wife and I have had everything Joint from the get go. When we sold our home 2 years ago that was in both our names we opened up a Non-Reg account in both our names (JWROS- Joint With Rights of Survivorship). Both of us are authorized to trade on the account and any dividend income received has both our names on the yearly slip we get from our brokerage. This way we simply split 50/50 all dividend income and any capital gains (none yet as no point in selling for a long term portfolio in most cases). CRA is just fine with this arrangement and have had no issues at all.

    Reply

  2. to Brad Williams, Hopefully you’ve been keeping track of who has been depositing additional cash into the account since it’s the source of the cash that determines to whom any income should be attributed. 50/50 is ok if it all came from the house sale, but if only one of you has been adding additional cash, then any income derived from assets purchased with that cash would need to be reported by that individual… not 50/50… at least according to CRA rules.

    Reply

  3. Still no clear who pay taxes in a Joint tenants WROS (with rights of survivorship) when you file taxes separately? I’m not legally married with my “wife” but we’ve got everything together, except TAXES that we file separated because we are not married.

    Reply

    1. Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [emailprotected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.

      Reply

  4. Ref: Richard Krol post

    The only money that has ever gone into the non-reg joint JWROS account is all the money from the house sale. We haven’t added any new money to each since it was opened. We both have our own TFSA’s so this is where any new money goes to. Thankyou for the info and feedback, much appreciated. I never really thought about any new money but it just worked that this didn’t happen with that account.

    Reply

Advertisement

Related Articles

Spouses and stocks: Is there a way to avoid tax when transferring assets? (3)

Taxes

2023 tax credits, due dates and when you can file: Your 2023 income tax return guide

We have everything you need to know about tax credits, changes and deadlines, and more. Get the info you...

2023 tax credits, due dates and when you can file: Your 2023 income tax return guide

Spouses and stocks: Is there a way to avoid tax when transferring assets? (4)

Retired Money

Are GICs a no-brainer for retirees?

GICs were embraced by many Canadian investors last year, whether conservative or not. With rates expected to fall again...

Are GICs a no-brainer for retirees?

Spouses and stocks: Is there a way to avoid tax when transferring assets? (5)

Ask a Planner

Should Canadians keep their investment accounts when retiring abroad?

For Canadians who plan to retire to other countries, here’s a primer on the tax implications of leaving accounts...

Should Canadians keep their investment accounts when retiring abroad?

Spouses and stocks: Is there a way to avoid tax when transferring assets? (6)

Taxes

Canada’s income tax brackets for 2023, plus the maximum tax you’ll pay based on income

Quickly find your federal and provincial tax brackets to help you prep for your 2023 income tax return.

Canada’s income tax brackets for 2023, plus the maximum tax you’ll pay based on income

Spouses and stocks: Is there a way to avoid tax when transferring assets? (7)

Investing

Webull Canada Review 2024

Stock trading platform Webull has landed in Canada with $2.99 trades. We review the new service, and determine who...

Webull Canada Review 2024

Spouses and stocks: Is there a way to avoid tax when transferring assets? (8)

Save

How are bonuses taxed in Canada?

If you’re getting a year-end work bonus or a raise, congrats! Before you spend it, know what deductions to...

How are bonuses taxed in Canada?

Spouses and stocks: Is there a way to avoid tax when transferring assets? (9)

Budgeting

What are climate action incentive payments? Plus, dates for 2024 carbon pricing rebates

The Canadian government recently sent out carbon tax rebates for January 2024. See how much you can expect to...

What are climate action incentive payments? Plus, dates for 2024 carbon pricing rebates

Spouses and stocks: Is there a way to avoid tax when transferring assets? (10)

Ask a Planner

How to carry back a capital loss for a tax refund

Let’s look at the rules and restrictions around carrying back a capital loss, as well as three things to...

How to carry back a capital loss for a tax refund

Spouses and stocks: Is there a way to avoid tax when transferring assets? (11)

Ask a Planner

Should you sell investments at a loss to pay off debt?

When paying a high interest rate on debt, does it make sense to sell investments that have fallen before...

Should you sell investments at a loss to pay off debt?

Spouses and stocks: Is there a way to avoid tax when transferring assets? (12)

ETFs

ETFs and RESPs: It’s always a good time to invest in education

Spouses and stocks: Is there a way to avoid tax when transferring assets? (13)

Sponsored By

Fidelity Investments Canada ULC

ETFs and RESPs: It’s always a good time to invest in education

As a certified financial expert with extensive knowledge in tax implications and wealth management, I'll delve into the concepts discussed in the article titled "Beware of spousal attribution" by Jason Heath, CFP. This article addresses a reader's query about potential tax implications when transferring assets from an individual non-registered discount brokerage account to a joint account with a spouse.

  1. Joint Brokerage Account and Capital Gains Tax: The article explains that if assets like stocks and mutual funds are transferred in kind (without selling) from an individual account to a joint account with a spouse, there are typically no immediate capital gains tax implications. This is because the transfer is treated as occurring at its tax cost.

  2. Spousal Attribution and Tax Implications: However, the article highlights the concept of spousal attribution. When capital assets are transferred to a spouse, whether to a joint account or individually, spousal attribution rules apply. This means that income or capital gains may be taxed back to the contributing spouse, potentially affecting future dividends, interest, distributions, and capital gains.

  3. Joint Accounts with Rights of Survivorship: To address the reader's question, the article suggests considering joint accounts with rights of survivorship. In this scenario, both spouses are added to the accounts, and the account is structured to transfer ownership to the surviving spouse upon the death of one spouse. This can simplify the distribution of assets and income.

  4. Spousal Loan Strategy: The article introduces the concept of a spousal loan at the CRA prescribed rate of interest (currently 2%). This involves loaning money to the spouse, with interest paid annually. While the contributing spouse claims the interest as income, the receiving spouse claims it as a tax deduction, potentially shifting investment income.

  5. Discretionary Family Trusts: The article discusses the establishment of discretionary family trusts as a strategy for managing non-registered assets. This legal structure involves a settlor, trustees, and beneficiaries, allowing for the legitimate splitting of income with lower-income dependents. Trusts may be preferable in situations with significant non-registered assets and multiple family members.

  6. Tax Considerations and Family Law: The expert emphasizes the importance of being aware of tax, family law, and estate planning consequences when opening joint accounts or adding family members. Proper identification of accounts and reporting of investment income is crucial to align with one's financial goals.

In summary, the article provides valuable insights into the tax implications and considerations related to transferring assets to joint accounts with spouses, offering strategies such as joint accounts with rights of survivorship, spousal loans, and discretionary family trusts. The guidance emphasizes the need for careful planning to avoid adverse results in taxation, family law, or estate planning.

Spouses and stocks: Is there a way to avoid tax when transferring assets? (2024)
Top Articles
Latest Posts
Article information

Author: Geoffrey Lueilwitz

Last Updated:

Views: 5490

Rating: 5 / 5 (60 voted)

Reviews: 91% of readers found this page helpful

Author information

Name: Geoffrey Lueilwitz

Birthday: 1997-03-23

Address: 74183 Thomas Course, Port Micheal, OK 55446-1529

Phone: +13408645881558

Job: Global Representative

Hobby: Sailing, Vehicle restoration, Rowing, Ghost hunting, Scrapbooking, Rugby, Board sports

Introduction: My name is Geoffrey Lueilwitz, I am a zealous, encouraging, sparkling, enchanting, graceful, faithful, nice person who loves writing and wants to share my knowledge and understanding with you.