# Money transfer between spouses



## windar2001 (Dec 21, 2010)

Me and my spouse have been splitting the bills for years. It happens more often than not that I pay the big expenses with my credit card, ex. vacations, hotels, etc. If there's a big imbalance, my spouse wires me money to bring the balance to 0.

The CRA doesn't care, right?

Now, we'll soon be starting to pool money together as part of our long term investment plan into a non registered account. (We maxed out our RRSP and TFSA.) We could always have separate accounts but then we would have to buy everything twice, rebalance twice, etc. We could also separate the securities between the two accounts but that has bigger issues. So pooling the money looks like the best option. But...

If we always put an equal amount of money in the account, we can split everything 50/50 when taxes are due. If it's 60/40 then it remains 60/40 and so on. That's the part I understand.

Let's say we want to keep it 50/50. We can't do it like the expense, bills, etc. right? We have to wire money from our personal accounts to the joint account to show who's money it is.... But if my spouse wires me money because she owes me and I turn around and invest it into the account, will the CRA hit me on the head or am I just splitting hairs with all this? 

I hate taxes.


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## slacker (Mar 8, 2010)

I'm no expert. But I hear the general strategy for income splitting is for the high income earner to pay the bills, and the low income earner to invest. Not 100% sure why though...


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## OhGreatGuru (May 24, 2009)

This has been discussed before in the context of joint accounts. Theoretically CRA's attribution rules require that income on joint accounts be allocated (for tax purposes) in proportion to each spouse's contributions. But from a practical point of view, CRA does not meddle in how spouses arrange their family budgets. (They can't require that spouses share household expenses equally for example.) So as long each spouse has enough income that they could have contributed 50% if they weren't also paying household expenses, CRA cannot really question it. 

However, in a family where spouses still keep separate income accounts, it may make sense for them to create a joint investment account to which they contribute equally just to provide a clear paper trail. But you don't have to do this.


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## Square Root (Jan 30, 2010)

We have been very careful to keep our accounts separate. My wife only contributes to her investment account and me to mine. The accounts are joint but we attribute all of her account income to her and mine to me. I have records going back to the establishment of these accounts to prove this. So far CCRA has never questioned us but I'm ready. It has become a moot point now with pension income splitting. I think it works better if you have separate accounts.


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## Pigzfly (Dec 2, 2010)

@ Slacker

Capital gains and dividends are taxed as a function of your income tax rate, so the lower earner pays a lower rate of taxes on investments.

ie - My income is so low at the moment that I would effectively pay a negative tax rate on canadian dividends. This is not the case for my partner.


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## windar2001 (Dec 21, 2010)

@ Square Root

Not sure I understand. Your accounts are joint but you keep them separated?

Let's say we want to keep 3 securities outside of our RRSPs. We have 50000$ to invest and buy:

SecA 20000$
SecB 20000$
SecC 20000$

Splitting everything up into 2 accounts would double the commissions (ETFs) and the work associated with tracking the ACB, margin interest, rebalancing, etc. You will never get the same exact prices for the securities if you try to copy the first account transactions. You can always try limit orders but it's not 100% sure. And if you try to split the 3 securities into 2 accounts it's even worse for risk management (even without the small margin).

If it's a single joint account then you just split 50/50 (or whatever) when taxes come and manage the money in a simpler way. We thought about not splitting 50/50 but we roughly make the same income so it's not worth the hassle.

That said, I haven't done it yet. That's why I'm asking for feedback


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## marc172 (Oct 23, 2010)

From what I understand, whichever name is listed first on your unregistered account would bear the taxes generated by that account.


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## Square Root (Jan 30, 2010)

Windar. Sorry for the delay in responding. I lost track of this thread. We each have joint cash accounts-chequing and savings. She has always had her own money so her money is in her account and mine in mine. Also have joint investment accounts but each of us has funded our own accounts. As for investing, she has her own portfolio and I have mine. I manage them both. They are not the same securities and my portfolio is more than 10 times hers. I pay all household expenses but she pays for her own personal expenses(sometimes). Not sure why people have issues with this topic unless your spouse doesn't have her own source of funds and you are trying to get some in her account to split income. Interspouse loans probably the solution in that case.


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## Square Root (Jan 30, 2010)

marc172 said:


> From what I understand, whichever name is listed first on your unregistered account would bear the taxes generated by that account.


Don't think this is right. He who funds the account attributes the income.


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## warp (Sep 4, 2010)

slacker said:


> I'm no expert. But I hear the general strategy for income splitting is for the high income earner to pay the bills, and the low income earner to invest. Not 100% sure why though...


"WHY" is very simple.

This allows the lower income spouse to keep more if not all of his/her money for investing. This can add up through the years.

Since the lower earner pays less tax,,,he/her will also pay less or no tax on investment income.

simple.

By the way, many low earners would actually be in a "minus" tax situation if they receive canadian dividends, from their investments.
The tax credit from the divs can actaully be MORE than the taxes owing on those same divs...meaning you can use that dividrnd tax credit to LOWER your taxes on other income..(earned income or interest income , or even CCP/OAS, for example)
This all assumes that you he/she will have taxes to pay in any given year.
You can reduce it to zero, but no less.


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## cannon_fodder (Apr 3, 2009)

My wife and I have a HELOC setup. I'm assuming that if we transfer money from it into individual non-registered accounts then we would each be individually responsible for any gains made in our accounts regardless of our proportional taxable income.

E.g., if my salary is 3x what my wife makes, but we transfer equal amounts from our HELOC into our individual investment accounts, our reported gains/losses would be distinct and have no relation to our incomes. Does that sound right and is a good method to avoid loaning money from one spouse to the other?


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## LBCfan (Jan 13, 2011)

My wife hasn't worked for the last 30 years, so no earned income. About 25 years ago, she inherited some farm land and MF's. I have always paid all bills and her money has been left to grow, as well, I contributed to a spousal RRSP and my own non-registered account. The idea was to try to equalize incomes at retirement. Since pension income splitting, it may have been for naught.

That being said, we have both claimed investment income for the last 25 years. Each claims theirs as 100% ownership and CRA has never questioned it. I doubt they will start anytime soon.


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## TaxGuy (Apr 7, 2009)

Square Root said:


> We have been very careful to keep our accounts separate. My wife only contributes to her investment account and me to mine. The accounts are joint but we attribute all of her account income to her and mine to me. I have records going back to the establishment of these accounts to prove this. So far CCRA has never questioned us but I'm ready. It has become a moot point now with pension income splitting. I think it works better if you have separate accounts.


That is EXACTLY what you are supposed to do!


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## fraser (May 15, 2010)

We recently took advantage of the low interest rates to set up a series of 1 percent loans from me to my wife (has not worked for many years, ie very little investment capital can be attributed to her). We had most of our investments in her name but attribution was highly questionable. A fairly significant amount of money coming to me from the excercise of stock options, pre retirement financial planning, and an incredibly low interest rate caused our accountant to lead us through a tax planning exercise. We have the demand notes set up properly and witnessed accordingly. Our finanical advisor has note of the loans, dates, and of course interest rate. In mid January he moves money from her account into mine to cover the interest payments. There is a clear audit trail. My tax situation will change in two or three years but until that happens this process will reduce the amount of tax that we pay as a family unit.


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## Square Root (Jan 30, 2010)

fraser said:


> We recently took advantage of the low interest rates to set up a series of 1 percent loans from me to my wife (has not worked for many years, ie very little investment capital can be attributed to her). We had most of our investments in her name but attribution was highly questionable. A fairly significant amount of money coming to me from the excercise of stock options, pre retirement financial planning, and an incredibly low interest rate caused our accountant to lead us through a tax planning exercise. We have the demand notes set up properly and witnessed accordingly. Our finanical advisor has note of the loans, dates, and of course interest rate. In mid January he moves money from her account into mine to cover the interest payments. There is a clear audit trail. My tax situation will change in two or three years but until that happens this process will reduce the amount of tax that we pay as a family unit.


Yes. That is the best solution if spouse has little money of her own. Once you start collecting a pension you can split that with her as well.


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