# Buying a rental... in whose name?



## Prospector (Jul 25, 2014)

So we are about 85% ready to pull the trigger on a rental property, but aren't sure whose name it should be in. Does it make any difference? Should we put the houses in the lower earner's name or the higher? is there a tax advantage either way? Or is co-ownership best to allow us to divide deductions/earnings?

Thanks for any advice you have.


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## Just a Guy (Mar 27, 2012)

Probably best to put it in both names. For taxes it allows income splitting. It's better for estate planning. In the case of a divorce, they'll take half or more anyway.

You should be able, on paper, to make most of the taxable income disappear anyways.


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## Spudd (Oct 11, 2011)

Whose money is it that will be used to pay for it? You can't just decide whose name it should be in, the income needs to be attributed to the person whose money was used to buy it (or split proportionally according to how much money each person put in).


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## Prospector (Jul 25, 2014)

Thanks to both of you - it will be bought using leverage from our existing home which is in both names. I like the "both names" idea, but was afraid there was a reason not to go down that road. If income becomes an issue in the future, I suppose we could form a corp. and split the proceeds.


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## Mukhang pera (Feb 26, 2016)

I'll take a somewhat different tack than the above two learned posters. They have probably done their due diligence and read all of your 28 posts here to date on this forum (which no doubt tell all), plus they have probably gleaned a wealth of information from your profile, and they need not have resort to any assumptions about you and your situation. I, on the other hand, have adopted a much less ambitious approach, so to provide any kind of response, I must make some assumptions. To start, I am going to work on the assumption that the "we" of whom you speak are a married couple, probably somewhere in Canada. For the sake of simplicity, I'll assume, as well, that you, Prospector, are the husband.

I would probably aim to have the property in the name of the lower earner if you expect to hold for long and if, over time, you expect it will show good positive cash flow and there is a prospect for a capital gain of any consequence. I'll assume that too is something you are looking to in the long term. 

Actually the matter rather bristles with issues that are difficult to address without a lot more background knowledge of the players. Are the lower earnings significantly lower and expected to stay that way? If so, income splitting may not be what you want. 

As for the comment - "You can't just decide whose name it should be in, the income needs to be attributed to the person whose money was used to buy it (or split proportionally according to how much money each person put in)." - I am not sure I agree. For example, you say you are borrowing against your existing home. At first blush, that might suggest that you are equal contributors to said home, hence to the rental. But that might be all wrong. You may be the one who brought into the marriage the money used to buy the current matrimonial home, even though perhaps registered as equals. In British Columbia, under the Family Law Act, you could call that contribution your "excluded property", not a family asset. That prospect also calls into question the correctness of the statement, above: "in the case of a divorce, they'll take half or more anyway". That may be true where JAG lives, but it's certainly not a given in BC. There are more reasons why that result might not obtain here, but I do not think you are seeking a treatise on BC family law.

So, lets's say for the moment that most of the equity in the existing family home is yours. You may nonetheless gift it to your wife for her to use to acquire the rental property. Therefore I do not accept the bald statement: "the income needs to be attributed to the person whose money was used to buy it (or split proportionally according to how much money each person put in)." That ain't necessarily so. Even if it be the case that you and your wife own equally the equity in the existing home, and you borrow, say, $100,000 against that home for the new purchase, then $50,000 of that money is yours, 50% hers. Yes, you could own the new place equally to reflect that, or you could gift her all or a portion of your $50,000. Another possibility is that she gets an ownership interest not reflecting her cash contribution at time of purchase, but perhaps reflecting a contribution in the form of acting as property manager, for being the one to pay for renovations, or any number of things. 

A number of these matters should, as a course of prudence, be set out in written agreements. Even between spouses, don't make transactions in cash and paper things well. That can save a lot of headache later on.

When I say bristles with issues, the approach you adopt might vary depending on estate planning objectives, which for you I could only guess at. Related to that, you refer to co-ownership and, if there is to be such, then you should consider the merits, in your circumstances, of joint tenants v. tenants in common. The ownership on title (and in reality for that matter), does not necessarily have to be equal in either case. It could appear, for example, as owned by you as to an undivided 70/100ths interest and her as to an undivided 30/100ths interest, or any variant.

Other sources of income, present and future, for both spouses, may have some bearing on the best decision. As for using a corporate vehicle, that brings in a host of other issues as to shareholdings, method of distribution of profits, taxes, etc. Creating and transferring to a company can get expensive as well, although sometimes worth it.

I suppose, at the end of the day, what I am saying is that one cannot be trite about this stuff and suggest there is one easy answer. I do not fault you for this, but we here have scant knowledge of your overall circumstances, unless an awful lot has been revealed heretofore in your earlier posts. Posters here can only make a few of many possible suggestions without a more fulsome exposition of the factual matrix.


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## Prospector (Jul 25, 2014)

Thanks for a great post Mukhang - So much to digest. 

We are about 15 years into our relationship and 9 years into marriage, so whatever individual contributions we brought to the relationship have likely balanced out through post-matrimonial life. At differing times each of us has been the bigger breadwinner, and there have been times when one or the other of us hasn't worked at all (mat/pat leaves). ATM, I would like nothing more than to retire from office work tomorrow, if I did that, then the rental income would all be mine, while the 9-5 income would be hers - but as long as I keep working we'll be sharing responsibilities with this sideline. I can't say our marriage is perfect but I am not predicting splitsville any time soon. Still your comments on documentation and diligence is noted. 

Also noted is the sudden spike in readers viewing my (empty) profile. I'll get on that.


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## Mukhang pera (Feb 26, 2016)

Y'er welcome grasshopper - oops, Prospector! If I have further thoughts when out for my walk in the woods shortly, I'll come back and share.

Don't feel bad about the profile. It does not lie in my mouth to complain. Mine is about as barren and bereft of detail as can be. One can cobble bits and pieces of mine together if one cares to sift through all of my posts to date - a daunting task, particularly given my less than felicitous style of prose.


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## LBCfan (Jan 13, 2011)

Prospector said:


> Thanks for a great post Mukhang - So much to digest.


For tax advice, you might want to consult a lawyer or accountant but if an anonomous person on the the net wprks for you, so be it.


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## Mukhang pera (Feb 26, 2016)

LBCfan said:


> For tax advice, you might want to consult a lawyer or accountant but if an anonomous person on the the net wprks for you, so be it.


So just what, pray tell, crawled up your *** and died LBC? Why so negative?

I am sure that Prospector, like many others, is here to gather some ideas and not to delegate to me or anyone else a final decision-making responsibility in any particular matter. In my post, I have in no way purported to tell him how he should organize his affairs. Rather, I have sought to point out some matters worthy of consideration - food for thought. Ideas gathered here might help one to focus one's thoughts and to gain a better notion of questions and considerations to be borne in mind should one choose to consult, say, a lawyer or accountant. Indeed, being made alive to the issues might help one to decide if seeking professional advice is appropriate or worthwhile.

Recently you posted thus:



LBCfan said:


> I have a few shares in bankrupt/delisted companies. I've avoided "selling" them but both my BMO & RBDI accounts list them at some small percentage of $.01. I'm planning to dump them and take the CL. How many years is it good for?



Why did not not heed your own advice and consult a tax lawyer or accountant? Why did you ask a faceless crowd - of dubious credentials and provenance - on the web?

Or why did you not heed the recent words of wisdom of your authorship, appearing below? How is it your failed to do your own research (since, apparently, reading here cannot fairly be construed as "research")?



LBCfan said:


> There is no such thing as a "no risk" investment. The degree of risk is something YOU have to decide. Investing in any 'product' based on advice from anonymous people on an Internet site is High Risk whatever the suggestion may be. It's your money, it's your decision and the consequences fall on you. Do your own research and be prepared to swallow the results.


To another poster seeking career advice you said, in part:



LBCfan said:


> I'd say your potential programs at BCIT aren't likely to help you get a job as a cop. There may be programs somewhere that will.


How is it that you had the temerity to offer advice? Why did you not remonstrate and kick his ***? It was your duty to tell him he was being a fool to seek input about a matter as serious as his career from anonymous lot of ne'er-do-well internet types. Your failure to provide proper guidance was egregious, worthy of opprobrium.

Perhaps I am way out over my skis, but I have heretofore adhered to the view that the raison d'être of a forum such as this is to provide a vehicle for an exchange of information, thoughts, musings, yes, even advice, from those with some relevant training or experience which any one of us, as individuals, might lack.

So indulge me and let me ask, LBC, for what purpose did you sign up here?


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## Spudd (Oct 11, 2011)

I definitely would suggest doing thorough research to see what is allowed and what is not. The following link appears to have some good information:

http://fbc.ca/knowledge-centre/whats-cras-position-family-gifts

I do not think it is a simple matter of just gifting equity to your wife although I could be mistaken.


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## Mukhang pera (Feb 26, 2016)

Spudd said:


> I definitely would suggest doing thorough research to see what is allowed and what is not. The following link appears to have some good information:
> 
> http://fbc.ca/knowledge-centre/whats-cras-position-family-gifts
> 
> I do not think it is a simple matter of just gifting equity to your wife although I could be mistaken.


A useful article, but I see nothing there that would prevent Prospector from making a gift of cash to his wife to help her to purchase an income property. As well, there are probably a variety of other devices that could be employed, such as lending her the money. 

From what Prospector has said here, frankly I see no need to too much soul-searching, retaining a battery of professionals or much else in deciding how to set up title holding in this case. It might be more complicated if Prospector was contemplating handing off to his wife a rental property he had long owned. I might be wrong, but if Mrs. Prospector in her 2016 tax return reports that she purchased an income property during the year and reports the income, I rather doubt the CRA will assign an investigator to see how it was financed and if it was all the high-income-earning husband's money and the whole transaction was a ruse to allow him to evade (illegal) and not avoid (legal) taxes.


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## Spudd (Oct 11, 2011)

Mukhang pera said:


> A useful article, but I see nothing there that would prevent Prospector from making a gift of cash to his wife to help her to purchase an income property. As well, there are probably a variety of other devices that could be employed, such as lending her the money.


I would tend to disagree.



Taxtips.ca said:


> If income-producing property, or money which is used to purchase income-producing property, is transferred or loaned to a spouse, either directly or indirectly, or by means of a trust, the income and capital gains from the property will normally be attributed back to the person giving the gift or loan.


http://www.taxtips.ca/personaltax/attributionrules.htm


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## Mukhang pera (Feb 26, 2016)

Cool one there Spudd. 

You cite one article, I take the time to read it, then say that I see nothing in *that *article that would cause me to change my initial view. Then, purporting to disagree, you change horses and cite a _different_ source in an effort to raise a challenge. 

Your second-cited source reads, in part:

"If income-producing property, or money which is used to purchase income-producing property, is transferred or loaned to a spouse, either directly or indirectly, or by means of a trust, the income and capital gains from the property will normally be attributed back to the person giving the gift or loan."



...the most relevant portion of your second source, which reads thus:

"If one spouse is in a higher tax bracket, it may be beneficial to lend money to the lower-income spouse. Money can also be loaned to a child. The funds can be used to purchase investments, and tax on the investment income will be paid by the lower-income spouse at a lower marginal rate."


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## Mukhang pera (Feb 26, 2016)

Prospector,

Please forgive some of the ugliness that has emerged here and my part in it. You came along with an honest question and I did my best to provide some ideas, not saying you should rely solely on me in making your decisions. I take you to be an intelligent fellow who would not do that in any event. I think you have the capacity to receive input and weigh it and take from it what you will. If my small contribution offers some food for thought, that is good. I have taken benefit from the thinking of others here and I feel it appropriate to try to contribute. I'll confess that not all of my ideas, if offered, will be good ones. If I had all the answers, I would not be here.

Overall, I accept that most here are decent folks who are interested in an exchange of experiences and ideas and we can learn from one another. That does not mean than any of us abdicates to anyone else here important decisions. We do not check our common sense upon signing in. The value to be gained is to see other perspectives, garner some ideas, take what we can from the experience and advice of others. I take it that most here are able to sift through what gets presented here, separating the wheat from the chaff.

Sadly, there are some who come here just to incite quarrels and dissent and who have little to contribute to a friendly and intellectual exchange. That seems to be something endemic to places such as this.

Best,
mp


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## Spudd (Oct 11, 2011)

I am merely trying to help Prospector avoid any potential issues with the CRA. There is no need to call me a troll. I have not been rude or offensive in any way as far as I can see. 

I apologize for not mentioning the spousal loan option, but I thought it would be clear if the link I provided was read. 

The information I have been providing is simply what I have gathered during my time here on the forum based on similar past discussions. I don't claim to be an expert, hence why I have been providing links to expert sources rather than trying to explain everything myself. 

I feel your attack was mean and uncalled-for.


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## Mukhang pera (Feb 26, 2016)

Spudd said:


> I don't claim to be an expert, hence why I have been providing links to expert sources rather than trying to explain everything myself.
> 
> I feel your attack was mean and uncalled-for.


Okay Spudd, but I am not sure that the "expert sources" are clothed with any greater expertise than that to be found on this forum. To me, simply because someone has created a website and touts themselves as having expertise does not necessarily make it so. Some of what I read of the sources you have cited is incomplete, internally inconsistent and open to question.

I'll take your word that you were striving to be helpful, as was I. But, in your effort to be helpful, I saw you as derogating from my attempt to be helpful. Let's just call it incompatible modes of expression. You have made close to 2,000 posts here and I cannot say I have read anywhere near all of them. I'll grant that some have been of value to others here. I am a relative newcomer and all I am trying to do is to give back a little, having found something of value in the exchanges here. I have little to gain by heaping calumnies upon you, or anyone else here.

I won't altogether concede the "uncalled-for" criticism, but perhaps my rebuke was couched in somewhat intemperate language. Perhaps as rebuke was unnecessary and a more gentile repartee was in order. So, to that extent, I'll pull in my horns and extend to you an olive branch.


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## Prospector (Jul 25, 2014)

Even the in most turbulent of streams we find calm in the eddies. 

This argument begins to sound like "Someone is wrong on the internet!" but its all good. I have a really good coffee this morning, and the deal fell apart anyway due to complications from dementia and powers of attorney and family issues on the seller's side. Thanks guys for taking the time to share two points of view.

I think there is validity in hearing out advice online - even in things as critical as this. In my early internet days, I was an active member of a canoeing forum. Everyone gave all sorts of caveats about following what was on the maps and referring to gov't publications for canoe trips, which was fantastic. But those who had gone before and paddled the rivers and lakes often knew about spots where the portage had moved or a line in a rapid that could be run, despite what the charts said. In a very real way those bits of information were lifesavers - just as the experience of those on boards like this can be a lifesaver. 

So I value hearing both points of view - the "consult your professionals" side and the "here's how to do it" side both have validity when accompanied with the experience that made each approach successful. Thanks to you both. I'll keep both bits of advice in mind.

I'm sitting in an eddy now, just waiting for the next chance to rush into the current.


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## Spudd (Oct 11, 2011)

Thanks Mukhang, I apologize as well.


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## Numbersman61 (Jan 26, 2015)

The reality is that one has to be very careful in transferring assets to a spouse who has lower income because CRA hates income splitting. It can be done by way of a loan to your spouse but the loan must provide for interest at the prescribed rate (currently 1% per year) which must be paid 30 days after the calendar year.
http://www.bfinancial.com/documents/1777294/2215987/Income+Splitting++Using+Spousal+Loans.pdf
http://business.financialpost.com/p...-prescribed-interest-rate-for-decades-to-come


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## Mukhang pera (Feb 26, 2016)

Spudd said:


> Thanks Mukhang, I apologize as well.



Spudd, I have substantially edited my post taking you task. No need for some 
of that stern language to remain here, hanging around like a bad smell, in perpetuity.


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