August 8, 2018

Avoid tax traps when opening a joint investment account

Depending on the reason for changing an investment account from an individual to a joint account, the change can have unintended implications due to spousal attribution. This won’t happen when opening a new joint account. But if you transfer capital assets to your spouse inside a joint account, then attribution will generally apply, and the income or capital gains will be taxed back to the contributing spouse. If the reason for changing an account type is for estate planning, then a better way to accomplish this may be to add each other onto existing individual accounts as joint with rights of survivorship. Before you make a change, it’s good to know the tax implications that comes with each type of scenario.

Key Takeaways:

  • Combining accounts or transferring funds may result in spousal attribution, whereby the contributing spouse is taxed.
  • If your goal is to have the resulting investment income go to your spouse, then consider a spousal loan at the CRA prescribed rate of interest.
  • A trust may be considered (instead of a spousal loan) if there are significant non-registered assets and there are other family members for whom they want to use or allocate the trust income.

“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. It’s important to be aware of the implications to ensure it’s what you want and nothing adverse results.”

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