# Should House Downpayment be 50/50 Split with Spouse?



## peterk (May 16, 2010)

I think this has been asked before on CMF, I remember vaguely, but don't know the answer anymore and can't find much in search..

When a primary residence is eventually sold - who's money does the proceeds of the sale become? Is the default transaction executed by the bank for it to be split 50/50 between the two owners accounts if the ownership is registered as 50/50 with a husband-wife couple being the sellers? _When would this not apply?_

I remember the conversation going something like: "How would anyone ever be able to determine who payed for what in relation to the house - down payment, mortgage, taxes, insurance, renovations, etc. - over the course of 20 years and come up with the correct attribution upon eventual sale?"

Assuming that the above set of varying transactions is an unknowable factor, and that the banks/CRA generally accepts that to be true, is there any benefit to having the lower income spouse cough up enough down payment cash to put in their full 50%, and thus "Proving" that they paid for half the house by way of half the downpayment? to which they are then eventually entitled half the proceeds?

My wife wants to contribute to our house down payment, but I'm trying to figure out if we should keep it simple and just use her available TFSA funds, and I put in the rest? This would make the down payment contribution about 25% her and 75% me. For her to put in the full half, she'd need to do a HBP withdrawl. This isn't a big deal, but I'd rather not if it's not really necessary.

Down the road, it would obviously be a big deal for future investment income taxes if somebody (bank? CRA?) comes in and says "sorry - 3/4 of that 1M house is yours sir, your wife only put in 25% to the down payment way back in 2020".


----------



## Plugging Along (Jan 3, 2011)

I didn’t think there was tax on aprincilpe residence. It shouldn’t matter With the down payment split for CRA, The matrimonial home is split 50/50 in the event of a relationship breakup if purchased when married.


----------



## STech (Jun 7, 2016)

The CRA doesn't care. 

If the marriage breaks down, and without a marriage contact, each spouse will end up with 50%. Even if one spouse paid 100% of the down payment, mortgage, repairs, upgrades, etc. And even if the other spouse didn't pay a single dollar for anything.


----------



## AltaRed (Jun 8, 2009)

Agreed it does not matter for a principal residence with joint (undivided interest) title. It could theoretically matter eventually, when the residence is sold and IF the proceeds are used in an odd manner* to earn investment income, but CRA would typically just assume it is 50/50 in a joint (undivided interest) title. The down payment would have been such a tiny percentage of the overall value anyway.

Taxation (federal) principles are different than family law (provincial) principles so one can't automatically use Division of Assets principles on relationship breakdown as justification for taxation purposes, but it is technically a moot point with CRA for a principal residence. I suspect they know families don't keep track of contributions to a principal residence.

* Extreme Example: For a spouse who had never worked outside the home, but on sale of the property, it was that lower income spouse that took all the proceeds and invested it in capital markets. Pretty sure CRA might flag that scenario if they caught on and want to know where the lower income spouse got all that money.


----------



## gardner (Feb 13, 2014)

As long as it is a principle residence, it doesn't matter. If, some time down the line, you convert it to a rental, then it could come to matter. This is the situation I have with our former residence that we subsequently rented for 17 years and finally sold. The CRA would WISH that we could attribute the gains to the proportion of capital input, but that information is essentially lost to history now. We will basically go 50/50.


----------



## AltaRed (Jun 8, 2009)

And 50/50 is a neutral logical position. I sure wouldn't take any more time to think about it.


----------



## peterk (May 16, 2010)

AltaRed said:


> Agreed it does not matter for a principal residence with joint (undivided interest) title. It could theoretically matter eventually, when the residence is sold and IF the proceeds are used in an odd manner* to earn investment income, but CRA would typically just assume it is 50/50 in a joint (undivided interest) title. The down payment would have been such a tiny percentage of the overall value anyway.


Thanks folks! Yes, that was my question. Sorry I guess I wasn't being as clear as I thought. I know there is a a principle residence exemption, I know there are different rules/assumptions for a divorce & division of assets.

I'm just asking about the most common of occurrences. You buy a house, make a down payment, make payments on it and pay for expenses. After you sell, * which spouse pockets the cash *? Is it automatically split 50/50 unless some extreme circumstance kicks in like it's a $5M house and the wife has no income/assets at all and it was just bought 2 years ago? 

In the regular scenario, where the husband pays for most of the housing expenses for years (maybe the wife contributes, but a lesser amount) is there any defined time frame or amount of contribution that would cause CRA to question 50% of the sales proceed going into the wife's account?

If I buy a house for $500k. She puts 25k down, I put $75k down, and I shell out another $175k for all mortgage and house maintenance expense for the next 5 years (since maybe she's off on mat leave, not working much, etc). Then we sell for 700k, move cities, and rent.

So I've laid out $250k, she's only put in $25k, and we have Net proceeds after the sale and mortgage is closed of $350k. This cash still just automatically gets split 50/50 into each of our respective chequing accounts $175k a piece?

To be clear, I'm not husbandly complaining about this or asking about the divorce scenario... I'm asking to make sure that, if that money is invested by the wife who received it, there is no attribution back to the husband as investment income.

If all this is true, it seems like a rather decent "loophole", or area of non-enforcement, of the attribution rules. Obviously a house is a legitimate "cost" but if there is a large capital gain (usually) it also clearly also acts as an investment vessel. Through means of principle residence capital appreciation, hundreds of thousands of dollars can be transferred from one spouse to another, it seems?


----------



## AltaRed (Jun 8, 2009)

That's the real point. Application of attribution rules. CRA will no doubt look at outliers to the norm. A big grey area and one I am sure CRA has a computer algorithm on. It wasn't that long ago, 3 years perhaps, when sales of principal residences did not need to be reported on tax returns. Now they do and it is for reason of a potentially wide open back door of abuse in a number of ways. Especially for people who would buy a house, fix it and flip it, as essentially a business, or to wash money, rather than a principal residence. They can use the same criteria now with an algorithm to see if a low income (or non-income) spouse now suddenly has a bunch of investment income.

As has been mentioned, as long as proceeds are split 50/50, it is not going to attract attention by any computer within the realm of reasonableness (norms). They don't have the staff nor the opportunity of reward to go chasing families with family homes. 

So to your first question, the answer is Yes Splitting 50/50 is fine for a normal transaction. Splitting proceeds on a $5M house after having owned it only 2 years will attract CRA's attention.

Second question in the regular scenario: Almost certainly no unless there is a pattern of flipping.

Third question: On $175k each going into each account, most likely not a problem at all. It's always going to be a question of reasonableness.

Added: The practicality is that the vast majority of couples will be paying a mortgage of some kind for 30-40 years or so, having likely moved 2-3 times for relocation or just to move up to a bigger, better house, all being principal residences. Most couples are dual income earners even if there is a wide disparity between incomes, or periods of no income. Almost everyone knows the high income earner disproportionately pays for household expenses and mortgage payments, even to the point of allowing the lower income spouse to invest his/her income, which is totally legitimate. Nothing in your specific personal proposal is outside the norms. Skip the HBP part.


----------



## Mukhang pera (Feb 26, 2016)

gardner said:


> As long as it is a principle residence, it doesn't matter. If, some time down the line, you convert it to a rental, then it could come to matter. This is the situation I have with our former residence that we subsequently rented for 17 years and finally sold. The CRA would WISH that we could attribute the gains to the proportion of capital input, but that information is essentially lost to history now. We will basically go 50/50.


Best answer so far, in my view. Leaving aside that no one on cmf seems to understand the difference between "principle" and "principal". But that's universal. A lost cause. 

If it's a principal residence, its disposition is a non-taxable transaction and who cares who contributed what? As for payout of the net sale proceeds, when I did conveyancing as a lawyer, I would have all registered owners sign an "Authority to Pay" setting out to whom the trust cheques should be made payable. I made no inquiry as to who had contributed what. I the absence of any direction, the cheque would be payable to the owners thus: If the owners were Joan and Bill, the cheque would be payable to "Joan AND Bill". That way both would have to endorse the cheque in order to cash or deposit. 

PA, STech and many others (seems it must be something incorrectly taught in grade school in Canada), marriage breakdown does NOT result in an automatic sharing of the equity in the matrimonial home (or any other asset for that matter). Does anyone here seriously believe that? Take an example. Rich girl marries a man of straw. She buys a nice house in West Point Grey, Shaughnessy, or some such in Vancouver (maybe on Park Lane Circle or in Rosedale in TO) for $15 million cash, and places both parties on title as joint tenants. The marriage falls out of bed one year hence. Does that really mean the deadbeat she married walks away with a cool $7.5 million for his one year term (plus substantial spousal support no doubt, calculated as to quantum and duration in accord with the Spousal Support Advisory Guidelines)?


----------



## AltaRed (Jun 8, 2009)

No, I agree the value of the matrimonial home is not automatically split 50/50 on marriage breakdown but that IS normally the case in most instances, e.g. long term marriage, raising children, etc. 

It is situational depending on the circumstances including the pre-nuptial or co-habitation agreement as well if there is one. If the HNW individual goes into a relationship without a pre-nup/co-hab, then the courts will have their say about division. I didn't bring that up because it wasn't apparently applicable in Peterk's situation. His issue is the relative disproportionate 75/25 down payment which he is not objecting too, and over time, who knows how household expenses including mortgage payments will be shared. Generally the higher income spouse will contribute more so that the lower income spouse can disproportionately invest his/her salary for income splitting purposes. Perfectly legitimate. In any event, taxation (federal) is different than family law (provincial) as I said up thread.

P.S. I entered a disproportionate relationship ~10 years ago and we agreed on a co-hab that spelled out the division we'd do, including our matrimonial home (in our case, tenants-in-common with specified interest).


----------



## peterk (May 16, 2010)

AltaRed said:


> That's the real point. Application of attribution rules. CRA will no doubt look at outliers to the norm. A big grey area and one I am sure CRA has a computer algorithm on. It wasn't that long ago, 3 years perhaps, when sales of principal residences did not need to be reported on tax returns. Now they do and it is for reason of a potentially wide open back door of abuse in a number of ways. Especially for people who would buy a house, fix it and flip it, as essentially a business, or to wash money, rather than a principal residence. They can use the same criteria now with an algorithm to see if a low income (or non-income) spouse now suddenly has a bunch of investment income.
> 
> As has been mentioned, as long as proceeds are split 50/50, it is not going to attract attention by any computer within the realm of reasonableness (norms). They don't have the staff nor the opportunity of reward to go chasing families with family homes.
> 
> ...



Great! Exactly what I was suspecting is the case. I'm sure it's only because I like to count money so closely that I could even imagine it being a concern. No doubt there are hundred of real estate sales occurring every single day that all have complicated cash-flow histories of who paid what and when. No doubt nearly zero of the couples ever bother to keep records of such things, and no doubt the CRA has nearly zero interest or ability to track such things, either.

Since my wife works and has money, will contribute some of it to the housing expenses, and no doubt will work intermittently and save/invest in the future, (as well as we don't plan to buy a very expensive house) I think it's a non-issue.


----------

