# Joint accounts



## jmalias (Aug 10, 2010)

The TD bank person asked why I don't I just have a joint investment account for my spouse and I. She explained that that is what she does and she decides at tax time which spouse claims the income generated. I thought it had to be equally shared and she says "no". So now I am wondering if I have had it wrong all this time. Is there special rules when joint ownership is with a spouse?


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## MoneyGal (Apr 24, 2009)

Oh, that just sounds great! Why didn't I think of that? My spouse and I can just "decide" at tax time who is going to report the income from our joint investment account, based on what the best deal for us is! 

/sarcasm

This is not how CRA treats joint investment accounts and there are multiple strict rules for reporting income in a way that reduces the amount of tax you'd otherwise pay. 

There isn't a single concise bulletin on the CRA site which explains this in detail. However, you could read the general anti-[tax] avoidance rules (GAAR) rules, and the bulletin on interspousal transfers of property (which contains a lot of detail on the attribution rules for spouses, formally known as "designated persons" for tax purposes).

The TL; DR version is: CRA expects income to be tracked and reported in proportion to the contributions of the individual to the joint account. No other form of reporting is allowed and where there is a dispute, CRA will allot the gains/income to the higher-earning spouse (who is in the best position to have contributed the funds). 

Even shorter version: The TD "bank person" is wrong.


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## MoneyGal (Apr 24, 2009)

See page 16 of the general tax guide for 2010 for a specific example from CRA about how investment income is allocated between spouses in joint accounts. 

They say this is how it is "generally" done. Hint: when it is not allocated in this way, typically it's because income is being attributed back to the higher-earning spouse, not the other way 'round.


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## CanadianCapitalist (Mar 31, 2009)

jmalias said:


> The TD bank person asked why I don't I just have a joint investment account for my spouse and I. She explained that that is what she does and she decides at tax time which spouse claims the income generated. I thought it had to be equally shared and she says "no". So now I am wondering if I have had it wrong all this time. Is there special rules when joint ownership is with a spouse?


Check out MoneyGal's post. You can't pick and choose who reports the income. If one spouse's income is significantly different than the other's, get separate accounts. Pay for expenses from the higher income spouse's account.

I'm surprised that a bank employee would suggest this.


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## Square Root (Jan 30, 2010)

Tota,ly agree with MG. See my post under the income splitting post.


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## stardancer (Apr 26, 2009)

This is how I have done it with my husband...
In the past, when I was doing CSB payroll deductions, the interest went on my return.

The penny stocks (gain or loss) goes on his return because they are his baby, even though the actual brokerage account is joint. The non-registered fund account is also joint, but goes on my return to balance out the stock account.

The interest from my own bank account is on my return, although the rules have changed and no interest is paid now.

The income from the mutual funds that I hold for my daughter goes on my return (not a heck of a lot of $$)

The main joint bank accounts are split 50/50. For a long time, he was making more money than me, but then I eventually caught up. Now our pensions are almost even. CRA has never questioned the 50/50 split, but then it's not as though we make thousands in interest.

I think the key is to keep it consistent. Once you decide which way to do it and have a rationale, keep it that way.


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## Square Root (Jan 30, 2010)

OK But there is only one correct way to do it. Whoever puts in the money must report the income. Proof of funding is important.


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## jmalias (Aug 10, 2010)

yea, i will stick to everything split in separate accounts..
I guess it is never really wrong until there is an audit
i am not worried about proof of which spouse's funds as they come from a joint account where both incomes are placed.


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## warp (Sep 4, 2010)

Heres another question:


What about a joint investment account between a single parent and a child?

Asumming the parent is elderly and the child is middle age.

The reason to do this is to keep these funds out of probate when the parent passes away, and the funds can all go directly to the child, as a "joint owner".

The "joint" account would consist ONLY of funds transferred into it by the elderly parent, or subsequently added into it, from the elderly parent.

Any tax implications here that anyone can shed light on?

thanks in advance.


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## MoneyGal (Apr 24, 2009)

In the situation you've described, there is a deemed disposition by the parent w/r/t the portion of assets now owned by the child. 

If this is just a bank account with cash and GICs there are no tax implications as these are not growth or appreciating assets - but future (interest) income must be split between the parent and the child in whatever proportion each is an owner. 

The other major thing to understand is that when you have a joint account, every account holder is equally able to withdraw any and all of the funds from that account and does not need the permission of the other account-holders to do so. 

In addition, the creditors of any account holders may seize any and all of the assets held jointly. 

The rules are different for joint spousal accounts. I've described the general rules for bank accounts held jointly between adult children and their parent.


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## Jungle (Feb 17, 2010)

I find it odd that the CRA has nothing to clarify this exactly. 

Ed Rampel posts that under joint ownership, one spouse/person must claim the deduction and it should be the same person every year. 

This makes sense as you are not choosing and avoiding tax. Its kept the same, so they can't say you were switching it around.


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## MoneyGal (Apr 24, 2009)

CRA has tons of information on the general anti-avoidance rules, the attribution rules for designated persons, gifts of capital assets to minor children and major children, and lots more. What are you looking for?


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## kcowan (Jul 1, 2010)

We have had joint accounts between spouses and also between spouse and her mom. According to the attribution rules, all the income with MIL was paid by her until her death.

With the spousal account, we divided the income between us based upon our respective contributions. But this is very hairy even with a spreadsheet. This included an investment account with stocks sales and dividends. Once the CRA called to question the calculation but it turned out that all they wanted to know was the rate of exchange used on US$ and once I told them, they were fine with the other calcs.

Once I withdrew a lump sum to pay for insurance and the resulting split was interesting to calculate. I would defy any CRA clerk to figure it out! As long as the totals balance and there is a rational explanation, you should have no problem.

But you cannot make arbitrary decisions on the splits. There must be an explanation.


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## MoneyGal (Apr 24, 2009)

...there has to be an explanation which is rational and defensible in light of GAAR. As in, your explanation cannot be, "we picked the route that allowed us to pay the least tax, although there's no way the non-income-earning spouse could have contributed the amounts he/she is being taxed on."


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## Square Root (Jan 30, 2010)

This is a risky area. Why wouldn't you just always have dedicated accounts. Eg one for me and one for you? These can be joint for legal and estate reasons but each person contributes/draws from their own account. Very easy if you do it this way. We do.


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## DavidJD (Sep 27, 2009)

Jungle said:


> I find it odd that the CRA has nothing to clarify this exactly.
> 
> Ed Rampel posts that under joint ownership, *one spouse/person must claim the deduction and it should be the same person every year. *
> This makes sense as you are not choosing and avoiding tax. Its kept the same, so they can't say you were switching it around.


This is the same advice I received and trust as most accurate - stick with the same person each year and stay under the radar.


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## OhGreatGuru (May 24, 2009)

Jungle said:


> I find it odd that the CRA has nothing to clarify this exactly.
> 
> ...


Do you really expect CRA to come out with a bulletin that says: _"We have a rule that requires you to strictly attribute earnings in proportion to each spouse's contributions, but from a practical point of view we can't enforce it, unless there is an obvious gross disparity between the spouses' financial ability to have made the contributions"_ ?


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## Jungle (Feb 17, 2010)

I don't see why not? They have a bulletin stating that you can transfer borrowed debt to a new account.


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## Square Root (Jan 30, 2010)

Just doesn't make sense to comingle funds in a joint account.


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## MoneyGal (Apr 24, 2009)

Jungle said:


> I find it odd that the CRA has nothing to clarify this exactly.


I posted a link much earlier in this thread with an extremely specific and clear example from CRA. Page 16 of the General Income Tax and Benefit Guide – 2010.

Here's what it says:

*How to report*

Enter a list of your investments in Part II of Schedule 4.
Generally, you report your share of interest from a joint
investment based on how much you contributed to it.

*Example*

Sally and Roger received a T5 slip from their joint bank
account showing the $400 interest they earned in 2010. Sally
had deposited $4,000 and Roger had deposited $1,000 into
the account.

Roger reports $80 interest, calculated as follows:
$1,000 (his share) × $400 (total interest) = $80
$5,000 (total)

Sally reports $320 interest, calculated as follows:
$4,000 (her share) × $400 (total interest) = $320
$5,000 (total)


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## Jungle (Feb 17, 2010)

Sorry I apologize, thank you money gal. 

If the HELOC is in my wife's name, but the investment account is joint name, who claims the deduction? 

I was just going to use my wife's tax return to do it for now and going forward.


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## kcowan (Jul 1, 2010)

If 100% of the Investment account returns were claimed by your spouse in the past, or if the investment account is new, then having her claim it all is fine.

If this represents a change, then you need to be prepared to explain the reason for the change. You must be able to track the HELOC funds into purchases for the fund. i.e. if the HELOC went to other purchases, it cannot now be deducted.


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## MoneyGal (Apr 24, 2009)

No worries Jungle! I do have a ridiculously detailed knowledge of the CRA web site.


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## warp (Sep 4, 2010)

MoneyGal said:


> No worries Jungle! I do have a ridiculously detailed knowledge of the CRA web site.


MoneyGal: AS you seem to know about the CRA,

Would you please take a look at a thread I started In the "investing" page , about foreign taxes being withheld on JNK, ( US junk bond etf), on capital gains distributions by them.

Any insight would be appreciated.

thanks


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## MoneyGal (Apr 24, 2009)

Hi Warp - I apologize that I cannot be more helpful. I have a pretty strict policy not to comment on individual investing instruments. Best of luck.


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## warp (Sep 4, 2010)

MoneyGal said:


> Hi Warp - I apologize that I cannot be more helpful. I have a pretty strict policy not to comment on individual investing instruments. Best of luck.


MONEYGAL:

You misunderstand my question.
I'm not asking you to comment on the merits of holding JNK.

This is a tax question.

Look at my thread under "Investing" about JNK owners.

On jan 6, 2011, JNK gave me three distribution payments, in my CASH account....( I own JNK in $US)

The first dist was a regular dividend.
The second dist was for "short term capital gains"
The third dist was for long term capital gains"

My brokerage BMO, added the first two together, and then withheld 15% US tax.
They did not withold on the long term capital gain dist.

This has caused an argument between me and them.

My position is that the 15% tax should have been withheld ONLY on the regular dividend, 
NO tax should have been withheld on any capital gain, short term, or long term.

I have emailed SPDRS in New York, who run JUNK, and they responded saying any tax withholding is strictly up to my brokerage here.

I have called the CRA and they tell me that our tax treaty with the US says NO tax should be withheld on capital gains unless:

1) I am a resident of the US, or
2) the gain was made on real property or the sale of a business.


Wht I was asking you, since you do know the CRA well ,it seems , is what you think BMO should and should not be withholding tax on.

This may also present a further problem next year if bMO becides to call my short term capital gain dist , as a regular dividend dist, on my T5.
That would mean that the CRA would expect me to pay tax on the full dist amount , instead of on 50% of the short term cap gain, as I should be!


I am also asking that if anyone reading this owns JNK, in a cash account, and with a brokerage besides BMO, to look at your jan 6, 2011 dist paymenst and let me know how they handled the tax withholding.



thanks.


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## chris.wb (Jan 27, 2011)

Capital Gains distributions in the US are treated as dividends in Canada - hence the withholding tax


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## warp (Sep 4, 2010)

That might make sense, but I do think you are wrong there, as the CRA person told me that capital gains should have no withholding taxes.

The main reason this cant be right is that there was NO withholding tax on " long term capital gains", while there was taxes withheld on "short term capital gains"

I do know that in the US short and long term capital gains are treated differently for tax purposes......but here in Canada,,,a gain is a gain, whther short or long ter, for tax reasons.

As well SPDRS in new york, who run the ETF in question,,( JNK), told me that they make no decision on taxes...that is completely up to my broker.

In any case I have all the big wigs at BMO looking into this, as it upsets me,,and is costing me money!


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## chris.wb (Jan 27, 2011)

In the US, Dividend vs. ST Capital gain distribution, vs Long term capital distribution has to do with how the earnings were taxed at the corporate level... a ST Capital Gain distribution, from CRA's point of view, is NOT actually a capital gain - it is still a distribution from earnings. You would not get the 50% deduction in Canada, it is taxed as ordinary income.


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## whaler1 (Feb 7, 2011)

MoneyGal said:


> I posted a link much earlier in this thread with an extremely specific and clear example from CRA. Page 16 of the General Income Tax and Benefit Guide – 2010.
> 
> Here's what it says:
> 
> ...



What type of record keeping does CRA require? I have a joint non-registered account and keep track of contributions by wife and myself in a spreadsheet. Will this suffice?


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## whaler1 (Feb 7, 2011)

MoneyGal said:


> I posted a link much earlier in this thread with an extremely specific and clear example from CRA. Page 16 of the General Income Tax and Benefit Guide – 2010.
> 
> Here's what it says:
> 
> ...


What does CRA require as adequate record keeping? Will a spreadsheet tracking contributions by each spouse suffice?


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## whaler1 (Feb 7, 2011)

Back to the taxation of joint a/c's...

What does CRA require as adequate record-keeping? Is keeping track of contributions by each spouse in spreadsheet enough?


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