21 February 1994 External T.I. 9401295 - INVESTMENT INCOME AND CAPITAL GAINS REPORTING - BASIC

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

		940129
XXXXXXXXXX	Sandra Short

February 21, 1994

Dear Sir,

Re: Reporting of Investment Income and Capital Gains

This is in reply to your letter of January 15, 1994 which queries the income tax consequences of transferring your accounts and those of your spouse to a joint ownership account. The accounts are with a stock broker and contain securities and a credit balance. Specifically, you have asked how the income from the securities so transferred should be reported for tax purposes and also whether any accumulated capital gains or losses on the securities at the time of transfer to the joint account should be reported.

Although your correspondence asks for a ruling, we are unable to comply with this request on the basis of the information provided. As you will note from the enclosed Information Circular 70-6R2, a fee of $90 an hour is charged for an advance income tax ruling. A advance income tax ruling must also conform with the requirements found in Information Circular IC 70-6R2. We are, however, prepared to offer general comments on the income tax implications of your enquiry.

Investment information slips such as T5 slips prepared by financial institutions are usually made out in the names in which an account is held. For income tax purposes, the income is required to be reported in the same ratio as the contribution made by each respective spouse to the account. In other words, for the purposes of reporting income earned in an investment account, it is irrelevant whether the account is held as a joint account or in the name of one spouse or the other. Examples of the reporting requirements in different scenarios can be found on page 14 of the 1993 T1 Guide (copy enclosed).

If it can be assumed that those accounts currently held in your name represent contributions or deposits from yourself and that those accounts currently held in your spouse's name represent contributions or deposits from her own funds (and not funds loaned or transferred by you), then you and your spouse will continue to report future investment income in the same manner when those funds are transferred to a joint account. If the effect or result of the transfer of funds and securities to a joint account is to transfer or gift property from one spouse to the other, then the income tax implications are complex and it is not possible to give you all-encompassing statements or guidelines. The following comments should be of general assistance to you. We have also enclosed material published by the Department which deals more extensively with these topics. If in reading the enclosed documentation you find references to other published items such as Interpretation Bulletins, Information Circulars, pamphlets or guides, you may contact the forms staff at your local district taxation office (the number to request forms from the Ottawa District Office forms staff is 957-8088 locally or 1-800-267-8440 for long distance calls in the 613 exchange).

The transfer of any property, including cash, securities and real property, to a person with whom the transferor does not deal at arm's length is usually treated for income tax purposes as a disposition of property at fair market value. A disposition of capital property may result in a taxable capital gain, based on its appreciation in value, to be included in the transferor's income. Subsection 73(1) of the Income Tax Act provides an exception to this rule for an inter vivos transfer of property to a spouse and subsection 70(6) of the Act provides an exception in respect of a transfer to a spouse upon death. The attached Interpretation Bulletin IT-209R discusses the income tax effects of these subsections on the donor and donee. Provided that either subsection 73(1) or 70(6) of the Act applies and the taxpayer does not opt out of the provision, these subsections allow for the capital property in question to be transferred to the spouse at the transferor's adjusted cost base with the result that the transferor will not be required to include in income in the year of transfer any capital gain that would ordinarily have accrued up to the time of the transfer.

Any income or capital gains earned on transferred property by the receiving spouse is attributed to the transferor, as explained in the attached Interpretation Bulletin IT-511 "Interspousal Transfer and Loans of Property made after May 22, 1985". Where capital property is transferred upon death and subsection 70(6) of the Act applies, a capital gain in respect of that transferred property is not required to be included in the deceased's final return. As well, income earned on that property in any period following the death of the transferor will not attribute to the deceased.

We trust that the above comments are of assistance to you.

Yours truly,

P.D. Fuoco
For Director
Business and General Division
Rulings Directorate
Legislative and Intergovernmental
Affairs Branch

c.c. Ottawa District Taxation Office