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Discussion Starter · #1 ·
Hi everyone. My wife and I jointly own a taxable investing account. Inside the account, we invest in various ETFs. The account must be joint for estate planning purposes.

When it comes to reporting taxes, I'm a bit confused. My understanding is that we must report which spouse owns what % of the account. It's hard to track what I vs. my wife contribute, since we also have a joint checking account. (Even if we could accurately track who contributed which dollar amount, it gets complicated. How do we track who owns which ETF within the account?)

Is it best to...

1) Simply report the account as being 50% mine, 50% my wife's, and the CRA will be cool with that? (Might be wishful thinking.)

2) Do our best to estimate how much each spouse contributed? (Due to the reasons described above, this might involve some guesswork...)

3) Create a SECOND joint account, and going forward, we'll report one as mine, one as hers? (This involves the "pain in the butt" factor of setting it up, selling assets, moving money over, and having to track two portfolios. But once it's set up, it's probably fairly painless.)

Has anyone else encountered this scenario? Thoughts on the best approach?

Thanks.
 

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The best way is to have 2 joint accounts. One being you as Primary meaning your SIN# will be on the account and you get the tax slips to report to CRA. The second account your wife is Primary and her SIN# will be on the account and she will get the tax slips to report to CRA. This setup is perfect for estate planning and keeping tax reporting simple and clear.

Ours has been setup this way for many years without issue.

Until you do that be realistic and report the % each is all I can suggest.
 

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Ditto to post #2. We used 2 JTWROS accounts for decades to avoid the accounting nightmare. The only other 'truthful' option is to do option 2 in some fashion (reasonable guesswork is better than defaulting 50/50 in most cases.

Option 1 might be justifiable if both spouses could have realistically equally funded the joint account such as, for example, a case where the higher income spouse disproportionately funded household living expenses so the lower income spouse could make higher payments into investments (entirely legal) to make it 50/50. It would not be kosher to assign 50% to spouse if there is no practical way the spouse could have made an equal 50% contribution to the account.
 

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Depends on your tax situation. On advice, we set up spousal loans 13 years ago or so. DW had no significant income.

I give her a demand loan at the prescribed rate of one percent. She invests the money. She claims the investment income, less the loan interest expense, on her T1. I declare her interest paid as income.
 

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That works if one does it early enough in life to get some traction from it over a number of years.... OR in the situation of a spouse having negligible income.

I prefer the disproportionate funding option if the lower income spouse has some material income. e.g. one has $100k per year and other spouse has $30k income per year. It is easily plausible that the $100k spouse pays the household bills and invests $20k into investments while the lower income spouse also invests $20k from $30k in income.
 

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That works if one does it early enough in life to get some traction from it over a number of years.... OR in the situation of a spouse having negligible income.

I prefer the disproportionate funding option if the lower income spouse has some material income. e.g. one has $100k per year and other spouse has $30k income per year. It is easily plausible that the $100k spouse pays the household bills and invests $20k into investments while the lower income spouse also invests $20k from $30k in income.
Agree. My spouse had limited earning after our children were born. Her contribution to our financial situation was not inconsequential. It enabled me to work the hours, do the travels, and relocate several times. Not to mention great investment advice to stay invested when the markets tanked!
 

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Depends on your tax situation. On advice, we set up spousal loans 13 years ago or so. DW had no significant income.

I give her a demand loan at the prescribed rate of one percent. She invests the money. She claims the investment income, less the loan interest expense, on her T1. I declare her interest paid as income.
same here, loan was for 1/2 account value and no CRA questions after 10 years since loan inception. Each year I generate a receipt for interest paid on the original amount and file that on my taxes
 

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same here, loan was for 1/2 account value and no CRA questions after 10 years since loan inception. Each year I generate a receipt for interest paid on the original amount and file that on my taxes
Our advice was to set up demand notes in various amounts. As our tax situation changed over over the past few years some of the demand notes were 'repaid'. Like you, we keep a record of the annual interest payments done via account transfers. We keep completely separate accounts. We do stab at a pro forma return in late November of each year based on anticipated investment returns. Then make any final changes that could impact tax for the then current year and the next year.

We clearly indicate the interest paid and interest earned on a separate line on our T1's so that CRA can clearly see that I am in fact declaring this interest income. I have had three desk audits over this period however CRA have never questioned this. This, and pension splitting, are really the only tax avoidance avenues open to us that I am aware of. Not counting $12 in RSP room that has been there for 10 years or TFSA's.
 

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If you have both contributed and spent income, you could possibly come up with a scenario that you could justify as 50:50. Or at at least one that cra could not disprove. Probably very unlikely that cra would question a family with modest income using 50/50. Is a stay at home Mom not contributing to family savings? Many couples rightly or wrongly use 50/50 to report investment income.

The rules should be changed, but I didn't hear any of the politicians even talking about it. Maybe I had dozed off 😴. Leyla's tennis match was far more interesting :)

With pension splitting, we both end up in the same tax bracket. It would likely make next to no difference if our investment income split was not exactly correct.
 

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This stuff gets a lot of net discussion because there is a basic misunderstanding of the differences in tax law versus family law. Tax law is primarily focused on the individual while family law is focused on the couple. Unless and until the ITA is completely overhauled to permit 'joint filing', there will always be some confusion at the tax payer level. Certain things have been layered on to the ITA to recognize 'couples' such as spousal loans, spousal RRSPs and pension income splitting, and a few tax credits for dependents, but otherwise tax law remains individually based.

The key, as already discussed is there is nothing in tax law that limits who pays what in household expenses, so the higher income spouse can always disproportionately fund those expenses allowing the lower income spouse to disproportionately invest. What does not fly, except by documented spousal loan, is a case where one spouse does not have earned income. That spouse clearly cannot contribute X to investments if that spouse has not earned at least X as well in the marketplace via T4 or self-employment income.
 

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We expect everything to change for us in two years. The RIF money comes into play for each of us and DW will take her delayed OAS at 70. This will cause us to reconsider if or to what extent we do investment splits. When it comes to CRA and taxes nothing is static.
 

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The best way is to have 2 joint accounts. One being you as Primary meaning your SIN# will be on the account and you get the tax slips to report to CRA. The second account your wife is Primary and her SIN# will be on the account and she will get the tax slips to report to CRA. This setup is perfect for estate planning and keeping tax reporting simple and clear.

Ours has been setup this way for many years without issue.

Until you do that be realistic and report the % each is all I can suggest.
Yes agree also - and to the OP, there is no need to sell and rebuy. Your provider should be willing to transfer in kind. Cost base per share remains the same, shares, ETF's and MF can be transferred in proportion - say 70/30 but this may be more difficult if you are holding GICs and bonds though but you can apportion these approximately.

OTOH, if you only have a small amount in your portfolio, and you plan to contribute equally going forward, then you are likely alright to call it 50/50. (still should split the accounts though).

If you determine the split to be 70/30, and that will be the proportion of investments going forward, you can go with that. This gets tougher if you have to make adjustments to % as spouses contribute different and changing percentages.
 

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Discussion Starter · #14 ·
Not sure if anyone knows the answer to this... but here goes.

My spouse has a taxable mutual fund in TD EasyWeb. For estate planning purposes: If we get TD to list me as a beneficiary on that mutual fund, does that protect the fund from probate court? Or would we need "stronger" protection from probate court, e.g. create a joint TD Direct Investing account, and move the mutual fund in there?

(I believe that listing a "beneficiary" is sufficient for RSPs and TFSAs, but I'm not sure about a taxable mutual fund.)
 

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Pretty sure you can't name a beneficiary on a taxable account. Create the joint and transfer in-kind from her account. We were able to do this without triggering a cap gain.
In fact, we created two joint accounts, as described above; tracking attribution is much easier. Existing single accounts can be transferred into the two joint without triggering cg.
 

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Pretty sure you can't name a beneficiary on a taxable account. Create the joint and transfer in-kind from her account. We were able to do this without triggering a cap gain.
In fact, we created two joint accounts, as described above; tracking attribution is much easier. Existing single accounts can be transferred into the two joint without triggering cg.
Agreed one cannot have beneficiaries named on non-registered accounts. We have discussed this multiple times on CMF. Create two JTWROS accounts, one with spouse 1 in the lead (and all assets are attributable to spouse 1) and one with spouse 2 in the lead (and all assets attributable to spouse 2). Keeps accounting easy and attribution for CRA purposes clean.
 

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Discussion Starter · #17 ·
e is Primary and her SIN# will be on the account and she will get the tax slips to report to CRA. This setup is perfect for estate planning and keeping tax reporting simple and clear.

Ours has been setup this way for many years without issue.
Agreed one cannot have beneficiaries named on non-registered accounts. We have discussed this multiple times on CMF. Create two JTWROS accounts, one with spouse 1 in the lead (and all assets are attributable to spouse 1) and one with spouse 2 in the lead (and all assets attributable to spouse 2). Keeps accounting easy and attribution for CRA purposes clean.
Thanks!
 
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