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Though tax reporting can be complicated, on this point the answer is simple—at least, from the Canada Revenue Agency’s perspective.
Q. I have built up a large stock portfolio by reinvesting the dividends over many years. If I open a joint account with my son, who is 19 years old, and he receives the dividends in cash, who pays the tax? And is this a good way to reduce taxes in our household?
–Sam
A. At first glance, the question of who owns an investment and who reports the investment income at tax time seems to be confusing but, in fact, it’s quite clear from the Canada Revenue Agency’s (CRA’s) point of view. The person who contributes the funds to an investment is the person who must report the income. Even if you open a joint account with your child and he or she receives the income, you are required to report this income on your tax return.
As you can see, this will not reduce taxes in your household. However, one CRA-approved option for splitting the income from your portfolio would be to gift all or some of the shares to your child. This will result in a capital gain to you, as you will have a deemed disposition of shares at the market value of those shares on the date of the disposition (or sale). However, this is a strategy you can use to pass on your assets to your child over time, and move the income into their hands to be taxed at a lower tax bracket. This strategy would, indeed, reduce taxes in your household over the long term.
Theresa Morley, CPA, CA is a partner with Morley Chartered Accountants in Barrie, Ont. Read her blog.
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my wife and I are retired she is 83 me 79, we have a non registered mutual fund account. My income is a bit more than hers. we want to transfer shares into separate TFSA. Who gets to claim the earnings on the tax forms. Can we portion the sale of the funds to the lower income level to save on taxes. Dont have any documentation,contibution made when we were both working.
Due to the large volume of comments we receive, we regret that we are unable to respond directly to each one. We invite you to email your question to [email protected], where it will be considered for a future response by one of our expert columnists. For personal advice, we suggest consulting with your financial institution or a qualified advisor.