# Giving money to my spouse for her TFSA



## Happyvdubber (Feb 26, 2010)

How does this constitute as Income Splitting? I don't follow.


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## OhGreatGuru (May 24, 2009)

Income splitting is probably a poor description. Because it is a tax-sheltered account, and withdrawals are also not taxed, there's no "splitting" of investment income in one sense.

But in another sense there is. Contributing to a spouse's TFSA is exempt from the normal attribution rules. If it was an unregistered account, theoretically the earned income is supposed to be taxed back in the hands of the contributor. Practicably CRA cannot usually enforce this anyway unless one spouse has little or no income at all, because they cannot determine how a family manages its budget. 

Since the TFSA is tax-exempt, the attribution wouldn't seem to matter anyway. But you can argue the lower income spouse is then permitted to withdraw funds from the TFSA, and re-invest them in a non-registered account, without worrying about whether earnings on the new account might be attributed back to the other spouse. 

So perhaps it's not so much "income-splitting" as a legal asset transfer without any risk of future earnings being attributed back to the donor.


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## Happyvdubber (Feb 26, 2010)

The various literature I've been reading recently often refers to "Income Splitting" as being one the benefits of a TFSA, until now I couldn't make sense of what the author(s) meant.

Thank you.


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## MoneyGal (Apr 24, 2009)

I wouldn't personally go that far, OGG. The benefits of a spousal contribution to a TFSA are non-attribution. 

I'd be careful about withdrawing funds from a TFSA to invest in a taxable account *if* you have no other sources of income *and* the funds were originally deposited to your TFSA by your spouse. But that's just me.


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## OhGreatGuru (May 24, 2009)

I agree MoneyGal. I was just speculating out loud as to why the non-attribution might make any material difference, since the TFSA income is non-taxable anyway. It's more a matter that the TFSA room is not tied to earned income, so a couple can fully utilize their combined room without worrying about which one "earned" the money they put in.


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## cardhu (May 26, 2009)

OGG said:


> _But you can argue the lower income spouse is then permitted to withdraw funds from the TFSA, and re-invest them in a non-registered account, without worrying about whether earnings on the new account might be attributed back to the other spouse._


You can try, but the attribution-exempt status exists only while the gifted assets are inside the TFSA ... remove them from under the TFSA shelter, and attribution resumes. 

I think that your initial comment about sums it up ... income splitting is a poor description for tax-free returns.


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## bean438 (Jul 18, 2009)

MoneyGal said:


> I wouldn't personally go that far, OGG. The benefits of a spousal contribution to a TFSA are non-attribution.
> 
> I'd be careful about withdrawing funds from a TFSA to invest in a taxable account *if* you have no other sources of income *and* the funds were originally deposited to your TFSA by your spouse. But that's just me.



WHy on earth would anyone want to do that? Even if CRA had no problem with it, they would be happy because now they get tax revenue, regardless of who's hands it is taxed in.


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## michaellalonde (Apr 28, 2012)

*TFSA's and attribution rules*



bean438 said:


> WHy on earth would anyone want to do that? Even if CRA had no problem with it, they would be happy because now they get tax revenue, regardless of who's hands it is taxed in.


Here's a scenario.

Pat and Chris are married Pat earns $150K per year and Chris earns $10K per year.

On Jan 1, 2010, Pat contributes $10K to Chris's TFSA. Chris invests well, and the TFSA realizes a capital gain of $7K on Dec 31, 2010: so now there's $17K in Chris's TFSA. Chris withdraws the $17K, in order to invest it in a non-registered account. This leaves a $17K contribution room in Chris's TFSA. On Jan 1, 2011, Pat contributes $17K + $5K to Chris. Now Chris has $22K in his TFSA and $17K in his nonregistered account. Chris invests well, and doubles his money, with realized capital gains in both accounts.

Note: the capital gains in the nonregistered account would now be taxed in Chris's hands rather than in Pat's hands: thus the tax rate would be lower. 

To the experts out there: Is this correct?


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