# Attribution rules of money gifted to spouse and invested in a TFSA



## john.cray (Dec 7, 2016)

Hey guys,

I came across this article from Garth Turner -- http://www.greaterfool.ca/2017/10/29/do-it/ where he suggests the following:



> Fill up your TFSA, obviously. Also that of your spouse. And your kids over the age of 18. Gift money to all of them with no gains TFSAs attributed back to you.


In other words, the attribution rules of money gifted to your spouse which is then invested in her TFSA don't apply, since TFSA gains are tax free? Is that what he is saying? Is this is entirely legal? Is anyone doing this and are there any problems whatsoever?

How does one technically execute such a contribution so that there are no doubts as of which money specifically is given to the spouse and then invested in the TFSA?: can you transfer money into someone else's TFSA account directly or is it OK to eTransfer into her/his chequing account and then they do their own TFSA contribution?

Cheers folks,
JC


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## Spudd (Oct 11, 2011)

My understanding of the situation is this:

You can give your spouse money and she can invest that in her TFSA. No attribution. 

HOWEVER, when she withdraws it from the TFSA, any income on it subsequently is attributable back to you. So she should only withdraw it to spend it, not to invest it. 

i.e. you give her 10k she puts it in TFSA and it goes up to 15k. She withdraws 15k and spends it on a vacation. No problem. But if she withdraws 15k and puts it in the bank and earns interest on it, then that interest goes on your taxes, not hers.


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## Spudd (Oct 11, 2011)

I googled it after I wrote this and here's an article that explains it:

http://www.advisor.ca/tax/tax-news/navigate-tfsa-attribution-rules-238420


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## Jimmy (May 19, 2017)

You can gift $ to a spouse or child. Then if they buy the assets themselves there is no attribution. 

It is only a problem when you gift actual 'assets' . They have to be at FMV or a bunch of attribution rules apply on the returns.


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## john.cray (Dec 7, 2016)

Spudd said:


> I googled it after I wrote this and here's an article that explains it:
> 
> http://www.advisor.ca/tax/tax-news/navigate-tfsa-attribution-rules-238420


Hi Spudd,

Thank you for pointing out to this article and your feedback. Great information!

Cheers,
JC


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## Eclectic12 (Oct 20, 2010)

Jimmy said:


> You can gift $ to a spouse or child. Then if they buy the assets themselves there is no attribution.
> It is only a problem when you gift actual 'assets' ...


My understanding is that this will hold true for small gifts but larger ones will trigger the attribution rules. That's why to avoid issues there is advice for the higher income earner to pay the expenses so that the lower income earner has more cash to invest or to go the loan route.
https://www.fbc.ca/knowledge-centre/whats-cras-position-family-gifts


Cheers


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## ian (Jun 18, 2016)

I do not know what the threshold level is for CRA on attribution. 

We have, for quite some time, used spousal loans to move investment income between us. We set up demand notes at the prevailing CRA rate (1 percent). We keep records of the interest payments between us (has to be done by Jan 15 I believe).

The spouse who 'lends' the money declares the income for the loan interest. The other spouse claims any interest or investment income for the monies loaned and deducts from that the interest that was paid to the spouse.

Our accountant suggested this some time ago and it has worked well for us. In the process of winding it down a little now that I no longer have employment income.

I cannot see the CRA being very bothered about attribution rules as it pertains to TFSA's.


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## Eclectic12 (Oct 20, 2010)

Maybe CRA won't be bothered ... but then again, where the TFSA amounts have become too large for CRA's liking, people who thought they were fine as their trades were in a TFSA have had CRA go after them. 

http://business.financialpost.com/p...any-wins-in-their-tfsa-being-targetted-by-cra


Cheers


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## My Own Advisor (Sep 24, 2012)

You can basically gift money for TFSA investing purposes. No attribution.


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## AltaRed (Jun 8, 2009)

My Own Advisor said:


> You can basically gift money for TFSA investing purposes. No attribution.


That is true for as long as the funds remain in the TFSA. All is good until the funds are withdrawn. At which time IF the funds are then used for non-reg investment income/cap gains purposes by the TFSA owner, attribution of the investment income/gains goes back to the original spouse gifting the money. That makes perfect sense when one thinks it through.


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## john.cray (Dec 7, 2016)

AltaRed said:


> That is true for as long as the funds remain in the TFSA. All is good until the funds are withdrawn. At which time IF the funds are then used for non-reg investment income/cap gains purposes by the TFSA owner, attribution of the investment income/gains goes back to the original spouse gifting the money. That makes perfect sense when one thinks it through.


Right, that's in line with previous comments from Spudd and the article he pointed out to. So if the owner withdraws funds from TFSA to spend and not invest it's also OK - no attribution.
Remaining points:

1. If the TFSA has a mix of own money and gifted money then withdrawals are tricky to differentiate. Did you withdraw your own money or the gifted? What about the growth? - If you don't re-invested in non-registed it doesn't matter. Article suggests having a second TFSA account for gifted money to keep it simple in the other case.

2. I keep wondering if there's anything special regarding the technical act of gifting the money to spouse. I.e. is it OK for the person gifting the cash use eTransfer to a chequing account of the recipient and then the latter does a transfer to the TFSA? What if there was other money in the chequing account at that time? How would you differentiate which money you transferred over, own or gifted?

Cheers,
JC


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## AltaRed (Jun 8, 2009)

Re:1 I imagine CRA would look at it on some proportional basis (growth that is) if a single account. This would follow the same thought process as is administered for ACB purposes on investments. That said, I don't know.

Re: 2. The paper trail via statements would prove it, no? There would be evidence of a deposit for X into spouse's account (from your account) and then a transfer of X by spouse to her TFSA, no? We all keep (or should keep if we don't) PDF copies of all our financial institution statements as the paper trail. I have PDFs going as far back as institutions first started offering that option, over 10 years in some instances. The best solution likely is to keep a spreadsheet of contributions, amount, from whom and dates with the PDF records as the proof.

And while off-topic and not germane to this conversation, I have a copy of every trading slip I ever made in my non-reg brokerage accounts as 'proof' of my ACB et al.


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## Eclectic12 (Oct 20, 2010)

AltaRed said:


> john.cray said:
> 
> 
> > ... 1. If the TFSA has a mix of own money and gifted money then withdrawals are tricky to differentiate. Did you withdraw your own money or the gifted? What about the growth? - If you don't re-invested in non-registed it doesn't matter. Article suggests having a second TFSA account for gifted money to keep it simple in the other case ...
> ...


Personally, I doubt it would be a mix. I think CRA would assume the gifted money/growth is being withdrawn first. The reason I suspect this is that for a spousal RRSP with two spouses funding it, recent withdrawals are assumed to be the higher income spouse first. 

I haven't seen a write up that spells it out so I suspect having a second TFSA to take care of bookkeeping would make life easier from a tractability view.


Cheers


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## john.cray (Dec 7, 2016)

AltaRed said:


> Re: 2. The paper trail via statements would prove it, no? There would be evidence of a deposit for X into spouse's account (from your account) and then a transfer of X by spouse to her TFSA, no? We all keep (or should keep if we don't) PDF copies of all our financial institution statements as the paper trail. I have PDFs going as far back as institutions first started offering that option, over 10 years in some instances. The best solution likely is to keep a spreadsheet of contributions, amount, from whom and dates with the PDF records as the proof.


Indeed there will records for that. Maybe I am missing something or overthinking it but say that spouse has $5500 of her own in her chequing account prior to transfer and then I send her another $5500 via eTransfer. Now she has $11000. Immediately after the eTransfer she moves $5500 from the chequing account to the TFSA in the brokerage, which later is invested. So how can anyone tell "which" $5500 she invested, hers or mine?


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## AltaRed (Jun 8, 2009)

It does not matter. It can be argued to CRA that the intent is clear in the sequence of the paper trail, as long as the movement of the funds is you transfer $5500 to her first, before she makes the $5500 transfer that same day or within a short period of time.


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## john.cray (Dec 7, 2016)

AltaRed said:


> It does not matter. It can be argued to CRA that the intent is clear in the sequence of the paper trail, as long as the movement of the funds is you transfer $5500 to her first, before she makes the $5500 transfer that same day or within a short period of time.


OK, makes sense. I guess the best option is for her chequing account to be completely empty first - no doubts in that case 

Thank you AltaRed, Spudd and all for sharing your thoughts.
JC


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## My Own Advisor (Sep 24, 2012)

AltaRed said:


> That is true for as long as the funds remain in the TFSA. All is good until the funds are withdrawn. At which time IF the funds are then used for non-reg investment income/cap gains purposes by the TFSA owner, attribution of the investment income/gains goes back to the original spouse gifting the money. That makes perfect sense when one thinks it through.


Sure, fair, but I doubt (although I don't know for sure?) how many folks CRA will want to pursue this with people - that's quite the rabbit hole no? 

Why put inside TFSA only to take out later and use for non-reg. investing? You are giving up tax-free growth and then taking on taxable growth.


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## AltaRed (Jun 8, 2009)

I have no idea. I think this is more of a technical argument (on process) than practicality.


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## gardner (Feb 13, 2014)

I am confused. If I give money to my nephew it basically becomes none of my business what he does with it. He can invest it registered or non-registered, spend it on school or hookers and blow -- or even waste it. A gift is received tax free by the recipient and as the giver I lose all control and responsibility for taxation of any proceeds.

There must be some element of non-arms-length in this potential re-attribution of spousal gifts on the theory that this might not be a genuine gift somehow but a wheeze to sprinkle money across multiple TFSAs.


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## Eclectic12 (Oct 20, 2010)

Your nephew example looks like it only works for an adult nephew. A minor nephew is mentioned in this article as an example of the attribution rules being triggered. http://www.taxtips.ca/personaltax/attributionrules.htm

There are other articles as well.
https://www.theglobeandmail.com/glo...ve-your-kids-money-no-really/article19854045/
http://business.financialpost.com/personal-finance/giving-money-to-your-kids-can-cost-you
http://www.advisor.ca/tax/tax-news/george-making-spousal-attribution-rules-work-for-you-2544


My guess is that with so many minors having so little interest in finance, let alone investing - the assumption is that a gift used this way is seen as a scam.


Cheers


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## Eclectic12 (Oct 20, 2010)

My Own Advisor said:


> Sure, fair, but I doubt (although I don't know for sure?) how many folks CRA will want to pursue this with people - that's quite the rabbit hole no?


Likely depends on how genuine the gift looks and how successful the receiver is at investing the gift. Moderate growth probably won't be a problem while spectacular growth may raise the idea that it is a sham gift with the giver maintaining behind the scenes control.




AltaRed said:


> My Own Advisor said:
> 
> 
> > ... Why put inside TFSA only to take out later and use for non-reg. investing? You are giving up tax-free growth and then taking on taxable growth.
> ...


I wonder if it is about consistency as well as the appearance of keeping the advantages for those with tons of cash a bit limited.


Cheers


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## Spudd (Oct 11, 2011)

I'm pretty sure it's just spouses and your own minor children where you have to worry about attribution.


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## Eclectic12 (Oct 20, 2010)

If it's only spouses and your own minor children, it makes one wonder why the TaxTips.ca article from post # 20 on the subject says:



> A related minor, for purposes of the attribution rules, is a child who is under 18 years old and does not deal with the individual at arm's length, *or is a niece or nephew of the individual.*


It also includes a link to an archived CRA article that has the same info.


Cheers


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