# My wife or me?



## Newby1983 (Apr 9, 2015)

Hi everyone, I have basic knowledge about tax savings but was hoping the experts here could shed some light on my best approach. 

My wife and I earn $30,000 (plus $16,000 gross from rent income which carries with it other tax write-offs i.e. interest, property tax, etc) and $100,000 gross, respectively. 

We are able to add $1000 monthly toward investments. I plan on apportioning this amount monthly in 4 TD e-series funds (RSP/TFSA). 

Should this investment money be put toward only my RRSP/TFSA and nothing toward my wife? How would you handle this approach? 

Thanks


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## wendi1 (Oct 2, 2013)

Are you planning on having (more?) kids or one or the other of you taking lots of time off work or going back to school or buying a house?

You might find that you funding a spousal RRSP is the best approach. When you retire, there will probably still be pension splitting, so the big question should be how do you fund these hiatuses. Hiati? Breaks.

I pay a monthly stipend to my RRSPs every month, and a lump sum in February (either to the spousal or my own RSP). Tax refund funds the TFSA more or less completely. Hubby puts a lump sum into his RRSP/TFSA when he has it.


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## AltaRed (Jun 8, 2009)

More info is needed. You don't explain division of income, i.e. who has more income and whose income is being used to invest. From an income tax perspective, you cannot combine your cash into one lump for investment purposes. Example: If it is your income available for investment, you can give your wife the cash to invest in her TFSA, or you can contribute to your own TFSA, or your own RRSP, or to her Spousal RRSP. And conversely if it is her income being invested.


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## Newby1983 (Apr 9, 2015)

wendi1 said:


> Are you planning on having (more?) kids or one or the other of you taking lots of time off work or going back to school or buying a house?
> 
> You might find that you funding a spousal RRSP is the best approach. When you retire, there will probably still be pension splitting, so the big question should be how do you fund these hiatuses. Hiati? Breaks.
> 
> I pay a monthly stipend to my RRSPs every month, and a lump sum in February (either to the spousal or my own RSP). Tax refund funds the TFSA more or less completely. Hubby puts a lump sum into his RRSP/TFSA when he has it.


Thanks Wendi1. No foreseeable hiatuses in our future. Since I am in a higher tax bracket than my wife, would it not be best for me to contribute to my RRSP? I haven't looked into spousal contributions and spent some time searching. Does this mean if I contribute to my wife, the contribution is deducted from my income now and when drawn in the future, is taxed at my wife's tax bracket (assuming it's still lower than mine)? 




AltaRed said:


> More info is needed. You don't explain division of income, i.e. who has more income and whose income is being used to invest. From an income tax perspective, you cannot combine your cash into one lump for investment purposes. Example: If it is your income available for investment, you can give your wife the cash to invest in her TFSA, or you can contribute to your own TFSA, or your own RRSP, or to her Spousal RRSP. And conversely if it is her income being invested.


Thanks. I earn $100k my wife earns $30,000 (+ $16,000 gross from rent income). The figure available ($1000) is disposable household available after all expenses. I am trying to figure out whose RSP/TFSA we should put the money into or how we should apportion it between my wife and I based on our different income.


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## wendi1 (Oct 2, 2013)

If you make a spousal RSP contribution, it comes off of your contribution room, and the tax receipt is made out to you.

When she withdraws it, if it is within three years of the last contribution, it is attributed back to you as income. After three years, withdrawals are her income. If she is withdrawing this after 65, it is pension income and can be split with you (so it doesn't matter whether it comes from her spousal RSP, her own RSP, or yours).

Hope this is clear. TFSA vs. RRSP depends on whether you think you both will be in a higher tax bracket in the future. My crystal ball doesn't work, so I put some in each.


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## AltaRed (Jun 8, 2009)

Newby1983 said:


> Thanks. I earn $100k my wife earns $30,000 (+ $16,000 gross from rent income). The figure available ($1000) is disposable household available after all expenses. I am trying to figure out whose RSP/TFSA we should put the money into or how we should apportion it between my wife and I based on our different income.


Depends on whose $1000 it is. Who pays the bills? Whose money is left over for investment purposes. CRA may eventually want you to provide the paper trail for whose money was really available for investment. It could be all hers, but only if she kept her income separate and the paper trail can show it is her money that is being invested.

A bigger question regarding the rent income. She can only claim that if she was the one who provided the money for the investment and is the one paying the expenses. She needs a paper trail available to show that. You cannot just split it or assign it as you wish. From a CRA perspective, it is called 'Attribution of Income'.

Added: You cannot just decide how to apportion the contribution of funds. You have to first determine (with a paper trail) whose money is actually being used to fund the contributions. That is how you get to your answer. 
There is no such thing as 'our income' from a taxation/CRA perspective. Income is either hers or yours.


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## Newby1983 (Apr 9, 2015)

AltaRed said:


> Newby1983 said:
> 
> 
> > Thanks. I earn $100k my wife earns $30,000 (+ $16,000 gross from rent income). The figure available ($1000) is disposable household available after all expenses. I am trying to figure out whose RSP/TFSA we should put the money into or how we should apportion it between my wife and I based on our different income.
> ...


Wow. No one has ever informed me of the need to have a paper trail about who pays expenses for the purpose of determining the source of investments. We share a joint account into which both our wages are deposited into and expenses paid out of. I believe many couples do it this way. Have you been audited on this matter before? 

Re rental income title, expenses are all paid by my wife. This was made clear to us when we purchased the home.


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## AltaRed (Jun 8, 2009)

Who provided the capital for the rental property? That is just as important than who pays the expenses in terms of attribution of rental income.

The CRA has a right to request a paper trail to 'follow the money' so to speak... so as able to accept or deny what a tax return says with respect to attribution of income. This can be a matter of real consequences, especially when the numbers get bigger from, for example, 6 or 7 figure portfolios. The CRA is not likely to ever raise the issue if the potential tax leakage is small and not worth their time, particularly since so many couples get this wrong anyway. I have not heard of personal instances when they have come calling, but it is entirely within their right to do so. 

One spouse simply cannot give another spouse funds to invest, without the income from that investment being attributed back to the contributing spouse. One key legal way to get around that is with a documented spousal loan with the CRA prescribed rate of interest. Google CRA Spousal Loans for further information. The other is for the higher income spouse to contribute to a Spousal RRSP taking the tax credit, and then a minimum of 3 years later, the spouse taking the money out of that Spousal RRSP. Google Spousal RRSPs for more information on requirements to prevent Attribution back to the contributing spouse. The same can be done with a TFSA although most? many? institutions will not accept transfers from a bank account in the name of Spouse A to a TFSA held in the name of Spouse B.

The key premise under the ITA is that taxpayers are individuals. There is no such thing as a joint tax filing nor is there such a thing as joint capital. It is either his or hers.

Too many couples have a single joint account which really screws matters up. Each party should have their own account to which income is deposited, from which they contribute funds for household expenses from a joint account IF that is what they wish to do. There is also nothing stopping the high income earner from paying all the expenses, thereby allowing the lower income spouse to preferentially fund investments. That is perfectly legitimate. But one needs to have the paper records to demonstrate the lower income spouse has enough income to actually fund those investments. It is easier to do from separate* accounts, thereby making record keeping simpler.

* My spouse and i used to have 2 joint accounts, both banking and investment accounts. One had my name first and the other her name first. We always made sure 'her' money was in the joint account with her name first and my money was in the joint account with my name first. That was the way we managed record keeping. And no way did money cross between those accounts. If we were to buy an expensive (joint) investment asset, we would document on paper how much proportion was attributable to each of us and investment (or bank) statements could be used to verify the transaction. It is not hard to do... It is simply a matter of being diligent.

Added later: It is never too late to start keeping records even if it was not done correctly in the past. By the time I found out about this about 30 years ago or so, we started doing it right. We never owned enough stuff before then to make it worth CRA's trouble to ever chase us. None the less, I worked backwards for the 5-10 years prior to see what proportion might be about right. It was not 50/50 but something reasonably close on the premise that the higher income spouse paid most of the bills leaving investable/savings close to 50/50. In other words, I could make a reasonable case if I needed to in Tax Court.

The issue here is to avoid accusations of tax evasion by falsing attributing income for the purpose of reducing taxes. Based on everything I've read over the past 30 years, CRA would take a reasonable approach to those who made a serious attempt to be 'fair' compared to someone who did nothing, or conspired to shift income to evade taxes. Simply put, it is never too late to start with proper attribution of income for tax purposes.


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## 0xCC (Jan 5, 2012)

Good explanation AltaRed. I also think a lot of people miss the point about not being able to just decide who gets to claim investments and investment income. I get the feeling that a lot of people just skate by because the income tax difference isn't enough to wake the CRA dragon.

In Newby1983's case it seems like the rental property and the $16k in income from that might be suspect. If the CRA could get an additional 43% of anywhere between $8k to $16k of that it could cross the threshold of being worth the effort for them.

To be clear to Newby1983 - it doesn't matter if your wife pays all the expenses for the rental property. What matters is where the money to purchase the property in the first place came from. If it came from your joint account and you have been making $100k while your wife has been making $30k and you have both been depositing your full take-home income into the joint account I would guess that your wife deposits roughly $24k/year in to that account and you deposit roughly $65k/year into that account. That would make the account about 37% your wife's money and 63% your money, so the downpayment for the rental would fall into those proportions and so should the income.


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## lost in space (Aug 31, 2015)

Some RSP advice I've picked up over the years


RRSP Basics 

Transfers in Kind

How to structure it with a SAHM


Other Uses 

1. Shift taxation within your life.
This is easy. During years when you are gainfully employed, contribute to an RRSP, deduct this amount from your taxable income, get a refund and invest that outside your plan. Then during those times of your life when you are fired, laid off, punted, outsourced, severed, displaced, rightsized or just general screwed by The Man, you can cash in the RRSP, live off the money it contains, and pay little if any tax while doing so. What you’ve done is build up your own emergency reserve, and at the same time shifted the tax burden from the years of employment to the period of freedom.

2. Split income with your spouse
Now, here’s an excellent use for your spouse. If you earn more than him or her, or your spouse plans on taking time off, or is older and due to retire sooner, or a babe still in school, then open a spousal plan. The law allows you to contribute into a plan for your spouse up to your own contribution limit. You get to deduct the funds from your own taxable income, but they become the property of the other person. After three years in there, the money can be accessed by your spouse (so choose carefully) and used for whatever, and is taxed at their rate – presumably lower than your. So, you have income-split. Just be careful no money is taken before the three years or it will be attributed back to you, and cause a giant, ugly domestic dispute.

3. Finance a kid
Speaking of a spousal plan, one of the best uses of RRSP money is to pay the household expenses during a mat leave. If a spousal plan is in place, your squeeze can cash it in (ensure each withdrawal is less than $5,000 to minimize the withholding tax), and use the money to replace lost income. Of course, to make this work efficiently, you will need to plan the pregnancy at least three years in advance with the mat leave commencing on January 1st. Piece of cake. Here’s a calendar.

4. Upgrade your skills.
Rules also permit you to raid your RRSP to go to school, or send your spouse there. The Lifelong Learning Plan allows $10,000 a year to be taken, to a max of twenty grand (or forty between two spouses). Then, after school’s done, you have 10 years to put the money back into your plan. If you don’t, it will be added to your taxable income annually. This sure beats paying a bank interest on a tuition loan. Plus, you can put money into your RSP, get a tax refund for doing so, then turn around and take it out for school.

5. Buy a house (dubious), and lever your downpayment (better).
Ditto for the Homebuyers’s Plan. Up to $50,000 can be taken from the RRSPs of you and your spouse for the purpose of buying your first home. Then you have 15 years to repay it, starting in the second year after the withdrawal. Don’t make the annual payments, and the bucks will be added to your income and taxed at your marginal rate. While buying a home is a bad idea right now in many cities, and while the HBP actually has no inherent benefit to it, it does allow you to lever a bit. For example, if you both took your $50,000 down payment and RRSP’d it, leaving it there for just 90 days, you might get a refund of $15,000 which can be used at closing to reduce the mortgage. But, knowing you, it’d go into a hot tub upgrade.

6. Generate a tax refund which you promise not to piss away in Aruba.
That should be obvious. Invest extra cash in an RRSP, get a refund cheque and put the money into investments inside your TFSA. This is called revenge. It tastes good.

Bonus thing to do with an RRSP: retire.

Yes, I know this is exactly why the thing was invented 60 years ago, and I’m quite aware the mama of all retirement crises is now just a few years away, since seven in ten people no longer have a viable company pension. But the TFSA is emerging for anyone under 35 as the retirement vehicle of choice – so long as you keep it fully funded each year, and invested for growth. Still, there is a role for RRSPs, since money can grow inside these suckers tax-free until you turn into a hideous wrinkly with glass ankles. Then you can ***** and moan about the tax you pay collapsing them.


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## Newby1983 (Apr 9, 2015)

wendi1 said:


> Are you planning on having (more?) kids or one or the other of you taking lots of time off work or going back to school or buying a house?
> 
> You might find that you funding a spousal RRSP is the best approach. When you retire, there will probably still be pension splitting, so the big question should be how do you fund these hiatuses. Hiati? Breaks.
> 
> I pay a monthly stipend to my RRSPs every month, and a lump sum in February (either to the spousal or my own RSP). Tax refund funds the TFSA more or less completely. Hubby puts a lump sum into his RRSP/TFSA when he has it.


I'm interested in knowing the purpose of this approach as it seems quite a few people on this site do this. If for instance you use your RRSP return to fund your TFSA, and both the RRSP and TFSA grow at 4% for argument's sake, and you decide to withdraw the full amount of that RRSP later in life, the amount of tax your charged on the RRSP withdrawal should equal the amount of your TFSA investment? So you are using the TFSA amount to offset the tax owing from withdrawing the RSP? 

Do you invest the TFSA contribution in something totally different than the RRSP in which it came from?


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## Guban (Jul 5, 2011)

Newby1983 said:


> I'm interested in knowing the purpose of this approach as it seems quite a few people on this site do this. If for instance you use your RRSP return to fund your TFSA, and both the RRSP and TFSA grow at 4% for argument's sake, and you decide to withdraw the full amount of that RRSP later in life, the amount of tax your charged on the RRSP withdrawal should equal the amount of your TFSA investment? So you are using the TFSA amount to offset the tax owing from withdrawing the RSP?
> 
> Do you invest the TFSA contribution in something totally different than the RRSP in which it came from?


The general hope of using the RRSP vs the TFSA is that the tax bracket during an RRSP withdraw will be lower than it was during the contributions. If the brackets are the same, then the TFSA and RRSP provide mathematically equal results.

The TFSA is relatively newer, and has lower contribution amounts than an RRSP, so for me, it isn't diversified as much as my RRSP.


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## wendi1 (Oct 2, 2013)

I am having trouble deciding if my tax bracket will be different in the future, and by how much. Of course, governments can change the tax brackets and amounts. So, I fund both RRSPs and TFSAs.

Other than keeping US and international stocks in RRSPs, and keeping heavy dividend payers/capital gains in our investment accounts, I balance my husband's and my RRSPs, TFSAs and investment accounts as if they were one big portfolio.


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