# non-registered account



## Saniokca (Sep 5, 2009)

Hi!

Now that all our registered accounts have been maxed out we have around 100k to set up into a non-registered account. At first I was thinking to make it a joint account but then I think it would mean that any time there are dividends/capital gains we would have to split them 50%/50% for tax return purposes?

Let's say I know that wife's income will be zero in 2018 and mine will be zero in 2020. Will the following scenario fly with CRA:
1) open account in wife's name, buy investments
2) in 2018 sell everything (let's say there are gains), pay very little (if any) tax
3) move the money into an account in my name
4) in 2020 sell everything and, again, pay very little to no tax

It's a simplified scenario but my main question is whether there are any issues/penalties with moving around money between spouses.

Thanks in advance!


----------



## Eclectic12 (Oct 20, 2010)

The attribution rule are the issue ... there are only limited situations where 
http://www.advisor.ca/tax/tax-news/george-making-spousal-attribution-rules-work-for-you-2544
http://www.fiscalagents.com/newsletter/4incsplit.shtml
http://www.taxplanningguide.ca/tax-...2-individuals/transfers-loans-family-members/
http://financialcrooks.com/spousal-income-attribution-rules-spousal-investment-loans/


The most common way to deal with it that I have read about is to loan the money using the CRA prescribed interest amount (1% I think, where it is updated on a regular basis) so that the income earned by the lower income earner stays on their tax return. I believe one needs to be sure the payment schedule is adhered to as missing the payment is supposed to potentially transfer the income tax back to the loaning spouse.


Cheers


----------



## jdc (Feb 1, 2016)

Open a joint account and be very scrupulous about recording where the money came from to defend a fully tax split 50% account. When your wife has the income, have her deposit her earnings in the joint account, when you are working, you make the deposits. Live off the 100K that you have saved. If possible, make the source of the funds unassailable by depositing your pay checks directly in the account. A true tax spit is so valuable in later life, it is worth the extra trouble now.


----------



## AltaRed (Jun 8, 2009)

Saniokca said:


> It's a simplified scenario but my main question is whether there are any issues/penalties with moving around money between spouses.


There are major issues (and potential penalties, i.e. tax evasion) with moving money around between spouses. As pointed out already, attribution of income to the spouse actually providing the funds is the critical component pursuant to the Income Tax Act. Other than documenting and keeping track of spousal loans with the prescribed interest rate that can change quarterly I think, the best way is to keep non-registerd invesment accounts separate. The way spouse and I did it was to have 2 joint accounts (JTWROS), one with her name first and she contributed 100% of the funds to that account (and thus declared 100% of the income at tax time) and the other one had my name first and I contributed 100% of the funds to that account (and thus declared 100% of the income at tax time). That is the simplest way for record keeping and leaves a paper trail for the CRA in event of an audit.

It is possible to have one joint account, with varying contributions from each spouse, but keeping track of who invested how much in what, and keeping a paper trail of that sounds like a major nightmare to me.


----------



## AltaRed (Jun 8, 2009)

jdc said:


> Open a joint account and be very scrupulous about recording where the money came from to defend a fully tax split 50% account. When your wife has the income, have her deposit her earnings in the joint account, when you are working, you make the deposits. Live off the 100K that you have saved. If possible, make the source of the funds unassailable by depositing your pay checks directly in the account. A true tax spit is so valuable in later life, it is worth the extra trouble now.


Virtually impossible to defend 50/50 tax splitting because different sums are often contributed at different times and thus capital appreciation will never be the same, never mind annual income streams. Additionally, it is important to ensure contributions made by each of you come from your own individual bank accounts, not a joint bank account. Otherwise there is no paper trail on whose funds were actually contributed to the investment account.


----------



## jdc (Feb 1, 2016)

AltaRed said:


> Virtually impossible to defend 50/50 tax splitting because different sums are often contributed at different times and thus capital appreciation will never be the same, never mind annual income streams. Additionally, it is important to ensure contributions made by each of you come from your own individual bank accounts, not a joint bank account. Otherwise there is no paper trail on whose funds were actually contributed to the investment account.


Difficult, not impossible. If you carefully document the source of funds, and properly pay taxes on the uneven attribution of gains until it is even, this can be done. For example, say one spouse puts in 50K and a couple years later the other matches it with their income earned. Spouse one pays taxes on all the gains and income to date, sells everything before the other cash comes in to match spouse one's balance, and Bob's your uncle.


----------



## Eclectic12 (Oct 20, 2010)

Isn't this a bit counter-productive though?

Selling everything just before the cash from the other spouse comes means taxes whittle down the return compared to staying invested ... unless one waits for the market high to sell and then can conveniently get back into the market at a lower level that overcomes the taxes.


Going forward ... is there a bunch of cycles of selling everything whenever one spouse has a big chunk of $$$ to add?
Do the rest of the contributions get timed to be equal amounts on the same day?


I don't mind the REIT calculations are they are tedious but relatively simple ... this sounds like more work than I'd want to do.


Cheers


----------



## jdc (Feb 1, 2016)

Eclectic12 said:


> Isn't this a bit counter-productive though?


I don't think so. The OP was suggesting to sell everything and transfer it to the other spouse's name, which clearly won't work. Doing the same thing without collapsing the account, and paying a couple of years of capital gains tax in order to achieve a true tax-splitting investment account is worth it. As AltaRed said, if there is a proper paper trail in future contributions, it does work, it just isn't easy. This is a really big deal in retirement, and well worth the effort. My wife and I have a seven figure joint non-registered account, fully documented.


----------



## jdc (Feb 1, 2016)

Eclectic12 said:


> Selling everything just before the cash from the other spouse comes means taxes whittle down the return compared to staying invested


The lifetime savings of income splitting will offset any short term effect of taxes while establishing a joint account.


----------



## Saniokca (Sep 5, 2009)

Thanks for your replies!

I am not too concerned with having meticulous paperwork because I do it for other purposes. 

Based on the comments above I see two possible ways to deal with it while the account is not too high (i.e. below 200k):
Scenario 1:
1) Have the 100k in her name - both our incomes are about 100k so it should be fairly easy to defend that amount. If I get audited however I think it would be a headache since I moved it around various "high" interest accounts.
2) Use her income to pay all our expenses while put mine away into a non-reg account of my own (could put non-dividend paying stocks there for example).
3) In 2018 she would sell everything and use that money for living expenses, car, etc. my account would have about 100k-200k there.

Problem with this one is that we are not big spenders so it would take a while to draw down 100k.

Scenario 2:
Do the same but loan money back and forth and use the same "scheme" to repay (i.e. the spouse with the account pays for all expenses while the other one is repaying the loan/building up their account). I remember reading somewhere that it's allowed for one spouse to pay for "everything" (rent, food, car - everything).

When I read my posts I can't help but thinking "greedy capitalist" . Then I remember that all this money has been taxed already... That discussion is for another thread though.

The 50/50 joint account suggested by *jdc* may be the way to go however here is another detail. We have around 540k in RRSP/LIRA* accounts which is split 160k-me and 380k-spouse (I exclude TFSAs since there are no tax implications there). Wouldn't it make more sense to put the account in my name up to a certain point then so that at "retirement**" (which hopefully will happen within 10 years). We can have a true 50/50 split in assets/income?

* includes the estimated value of my DB pension
** it will only be retirement in the sense that we will have enough money to quit our everyday jobs and take some time to think about what we really want to do. We have almost 800k today and target is 2M within the next 10 years (we each make around 100k when working and our household expenses are about 60k combined). I am again starting to go off on a tangent... apologies.


----------



## Numbersman61 (Jan 26, 2015)

It appears your object is to have almost identical balances at retirement. Simple solution is to open individual bank accounts for each of you in which you deposit your income. Transfer funds as need to joint account to pay expenses. If you want to build up your investments, then transfer less from your account to joint. Then there is no CRA problem with attribution rules. Costs a little more in bank fees but avoids potential nasty issues with CRA.


----------



## AltaRed (Jun 8, 2009)

Numbersman61 said:


> It appears your object is to have almost identical balances at retirement. Simple solution is to open individual bank accounts for each of you in which you deposit your income. Transfer funds as need to joint account to pay expenses. If you want to build up your investments, then transfer less from your account to joint. Then there is no CRA problem with attribution rules. Costs a little more in bank fees but avoids potential nasty issues with CRA.


Perfect solution. That way, the higher income spouse can disproportionately fund household expenses, allowing each to contribute 50/50 to the joint non-registered account. The issue here is to ensure the transfers are from the individual's own bank account, not a joint banking account. Example: Each has their own chequing account to which their income is deposited. Each individual then contributes equally to the non-registered investment account, and disporportionately to the joint banking account to fund household expenses. 

We do that in our household. Each of us has their own chequing account to which our income is deposited, and we have a joint chequing account to which we contribute disproportionately for household expenses.


----------



## Saniokca (Sep 5, 2009)

Numbersman61 said:


> It appears your object is to have almost identical balances at retirement. Simple solution is to open individual bank accounts for each of you in which you deposit your income. Transfer funds as need to joint account to pay expenses. If you want to build up your investments, then transfer less from your account to joint. Then there is no CRA problem with attribution rules. Costs a little more in bank fees but avoids potential nasty issues with CRA.


I agree with you and yes, the point is in the end to have identical balances overall (i.e. accross all accounts) at retirement. I was looking for ways to save a few bucks on the way there by timing leaves of absense so that during the leaves the investment income is attributed to the spouse that does not work.

Question: what is the point of having a joint investment account if I could just have two separate accounts (aside from convenience).


----------



## jdc (Feb 1, 2016)

Saniokca said:


> Question: what is the point of having a joint investment account if I could just have two separate accounts (aside from convenience).


There is a big difference if one of the parties dies.


----------



## Numbersman61 (Jan 26, 2015)

Saniokca said:


> I agree with you and yes, the point is in the end to have identical balances overall (i.e. accross all accounts) at retirement. I was looking for ways to save a few bucks on the way there by timing leaves of absense so that during the leaves the investment income is attributed to the spouse that does not work.
> 
> Question: what is the point of having a joint investment account if I could just have two separate accounts (aside from convenience).


Convenience is the main reason - it just makes sense to pay all the bills, including credit cards, from one account. 
My wife and I married when we were in our 60s (both spouses had died earlier). Since we have prenuptial agreements, it is important that our investments accounts can be tracked. The joint account rarely has a balance over $10,000.


----------



## Saniokca (Sep 5, 2009)

Numbersman61 said:


> Convenience is the main reason - it just makes sense to pay all the bills, including credit cards, from one account.
> My wife and I married when we were in our 60s (both spouses had died earlier). Since we have prenuptial agreements, it is important that our investments accounts can be tracked. The joint account rarely has a balance over $10,000.


We do have a joint chequing account as you describe - I was asking more about an investment account which will hopefully grow in the future. Before we started living together my wife had about 150k in investments - in the worst case scenario I can apply our average returns to date to find out how much it grew to.

However we consider our money/assets on a joint basis so whether going forward the higher income spouse pays for everything or the lower it makes no difference to our lives. It could however potentially save us from paying unnecessary taxes.


----------



## Saniokca (Sep 5, 2009)

jdc said:


> There is a big difference if one of the parties dies.


Thanks jdc - I haven't even started looking at these things... So if I am the beneficiary on the account vs. joint holder I am assuming it will be treated differently?


----------



## jdc (Feb 1, 2016)

Saniokca said:


> Thanks jdc - I haven't even started looking at these things... So if I am the beneficiary on the account vs. joint holder I am assuming it will be treated differently?


Yeah. Capital gains taxes need to be paid on any gains in a non-joint account before distribution to the surviving spouse. Probate fees too. A joint account with right of survivorship avoids this. The surviving spouse becomes sole owner of a joint account without taxation.


----------



## Woz (Sep 5, 2013)

jdc said:


> Capital gains taxes need to be paid on any gains in a non-joint account before distribution to the surviving spouse.


Not true if it goes to your spouse. The deceased’s deemed proceeds are the same as the property’s adjusted cost base (i.e. no capital gains) regardless of whether it’s a joint account.

See: http://www.cra-arc.gc.ca/E/pub/tg/t4011/t4011-e.html#P656_81620


----------



## jdc (Feb 1, 2016)

Woz said:


> Not true if it goes to your spouse. The deceased’s deemed proceeds are the same as the property’s adjusted cost base (i.e. no capital gains) regardless of whether it’s a joint account.
> 
> See: http://www.cra-arc.gc.ca/E/pub/tg/t4011/t4011-e.html#P656_81620


I'm not so sure about that. As I understand it, non-registered individual accounts do not allow beneficiaries, so must be collapsed and paid out to the estate as cash. Unless the actual investment assets are transferred to the spouse as would be the case with joint accounts, taxes will need to be paid on the disposition of those assets.

I could be wrong, but that's how I understand it...


----------



## Woz (Sep 5, 2013)

There’s no requirement for estates to be settled in cash (unless explicitly stated in the will itself). After the will is probated the executor would fill out a Declaration of Transmission form instructing the brokerage to transfer those securities in-kind to the spouses account. 

For example, for National Bank you can see in their Declaration of Transmission form under “Non-Registered” one of the options is “Rollover of securities to spouse at acquisition value”.

http://nbcadvisor.com/~/media/WebAd...eclaration_transmission_by_death_en.pdf?la=en

All brokerages would have a similar form.


----------



## jdc (Feb 1, 2016)

Woz said:


> There’s no requirement for estates to be settled in cash (unless explicitly stated in the will itself). After the will is probated the executor would fill out a Declaration of Transmission form instructing the brokerage to transfer those securities in-kind to the spouses account.
> 
> For example, for National Bank you can see in their Declaration of Transmission form under “Non-Registered” one of the options is “Rollover of securities to spouse at acquisition value”.
> 
> ...


Wow, thanks for the info. Does the spouse need to be identified in the will as the beneficiary of the account or specific securities, or can an executor do this for any investment asset of a deceased person to their spouse? It seems to me that it is still preferable to use a joint account, as an individual account will be frozen until the estate is probated and settled, and fees must be paid to the bank.


----------



## AltaRed (Jun 8, 2009)

The ITA provides for 'tax free' rollovers of assets to a surviving spouse no matter what kind of account they are in.....taking the original ACB of the investments with him/her. No need for joint accounts for that BUT the point of JTWROS accounts is that the assets automatically roll over to the surviving spouse, and can be done without probate.

The value of a beneficiary to registered accounts is that they can be rolled over without collapsing them.

There are thus definite advantages in joint non-registered accounts for married/common law couples. Go back to what I said earlier. Have 2 JTWROS investment accounts, one attributable 100% to each spouse. Easy, peasy.


----------



## My Own Advisor (Sep 24, 2012)

Non-reg. investments should be considered a deemed disposition at time of death - whether they’ve been sold or not – and applicable taxes are determined on gains.

This assumes we're talking about individual non-reg. accounts, not a joint account. That would be different.


----------



## Woz (Sep 5, 2013)

jdc said:


> Does the spouse need to be identified in the will as the beneficiary of the account or specific securities, or can an executor do this for any investment asset of a deceased person to their spouse? It seems to me that it is still preferable to use a joint account, as an individual account will be frozen until the estate is probated and settled, and fees must be paid to the bank.


It would depend on the number of beneficiaries in the will and how it's written. Most commonly it'd be leave everything to my spouse in which case you wouldn't have to list the account/securities. You'd want to avoid something like leave $500k to my spouse and the rest to my kids because then you're bequeathing cash. Even then though the executor would have some discretion.

Joint accounts with a spouse are still good though. AltaRed's suggestion is ideal. Two joint accounts with survivorship with each spouse only contributing to one of the accounts. As you mention they wouldn't be frozen and as AltaRed mentions there'd be no probate so you'd save the 0-1.5% depending on the province. On the other hand, joint accounts with kids to avoid probate can often have unintended consequences.


----------



## Woz (Sep 5, 2013)

My Own Advisor said:


> Non-reg. investments should be considered a deemed disposition at time of death - whether they’ve been sold or not – and applicable taxes are determined on gains.
> 
> This assumes we're talking about individual non-reg. accounts, not a joint account. That would be different.


No gains if inherited by your spouse, even in individual non-reg accounts. Deemed disposition is considered to be done at the adjusted cost base.


----------



## AltaRed (Jun 8, 2009)

My Own Advisor said:


> Non-reg. investments should be considered a deemed disposition at time of death - whether they’ve been sold or not – and applicable taxes are determined on gains.
> 
> This assumes we're talking about individual non-reg. accounts, not a joint account. That would be different.


No difference between a joint non-registered account and an individual non-registered account from a taxation perspective. An election can be made to roll the securities/assets of both over to a surviving spouse together with the original ACBs. There is no reason to trigger a deemed disposition to prematurely pay CG taxes.


----------



## Saniokca (Sep 5, 2009)

AltaRed said:


> There are thus definite advantages in joint non-registered accounts for married/common law couples. Go back to what I said earlier. Have 2 JTWROS investment accounts, one attributable 100% to each spouse. Easy, peasy.


This is great. Thanks!


----------

