17 February 2003 Internal T.I. 2003-0182177 - Transfer of Mutual Funds into Joint Tenancy

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 CCRA.

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

Principal Issues: Tax consequences of transferring a non-RRSP mutual funds account into joint tenancy with spouse.

Position: Question of fact. If a change in beneficial ownership has occurred, it would result in a disposition of 50% interest at fair market value and the application of the attribution rules in subsection 74.1(1).

Reasons: Paragraphs 69(1)(b) and (c) and subsections 74.1(1) and 248(1) "disposition".

February 17, 2003

Mrs. Hélène Ricard	Income Tax Rulings Directorate
Client Services	International and Trusts Division
Shawinigan-Sud Taxation Centre	Éric Allard-Pouliot
	4695  - 12th Avenue, P.O. Box 3000	613-957-2097
	Shawinigan-Sud QC  G9N 7S6
	2003-018217

Technical Interpretation Request
Transfer of mutual funds account into joint tenancy

This is in reply to your memorandum of December 12, 2002, and our phone conversation of February 3, 2003 (Bergeron/Allard-Pouliot), regarding the above-noted subject. More specifically, you have requested our opinion as to the tax consequences of transferring a non-registered retirement savings plan mutual funds account (the "Account") into joint tenancy.

Facts

You refer to a taxpayer residing in Ontario who is the sole owner of an Account that was funded exclusively by the taxpayer. Having just got married, the taxpayer is now considering adding his wife as the joint owner of the Account.

Having regards to these facts, you have requested our opinion as to what would be the tax consequences for the taxpayer and his spouse of adding the taxpayer's spouse as joint owner of the Account. For the purposes of the present letter, we assumed that the Account is subject to the laws of the Province of Ontario and is not held in trust.

Our comments

The tax consequences of the above transaction depend on whether it results in a disposition of an interest in the Account to the taxpayer's spouse. Paragraph (e) of the definition of the term "disposition" in subsection 248(1) of the Income Tax Act (the "Act") generally provides that a disposition will not occur as a result of any transfer of property as a consequence of which there is no change in the beneficial ownership thereof. It is a question of fact whether has been a change in the beneficial ownership. In this regard, reference should be made to paragraphs 2 to 5 of Interpretation Bulletin IT-437R "Ownership of Property (Principal Residence)" which generally discusses beneficial ownership.

If a change in beneficial ownership has not occurred so that there is no disposition for income tax purposes, the transfer of the Account into joint tenancy would not trigger any tax consequences for the taxpayer and the taxpayer's spouse would not be required to include any income or capital gains in income in respect of her joint interest in the Account.

On the other hand, if a change in beneficial ownership occurs as a result of the joint tenancy arrangement, the taxpayer would be considered to have disposed of a 50% interest in the Account as a result of its transfer into joint tenancy. Pursuant to paragraph 69(1)(b) of the Act, the taxpayer's deemed proceeds of disposition in respect of the 50% interest in the Account would be 50% of the fair market value of the Account at the time of disposition. The adjusted cost base of the 50% interest in the Account disposed of by the taxpayer would be equal to 50% of the adjusted cost base of the Account pursuant to section 43 of the Act. With respect to the taxpayer's spouse, paragraph 69(1)(c) of the Act provides that property acquired by way of gift is deemed to have been acquired at its fair marker value. Accordingly, the taxpayer's spouse would acquire the 50% interest in the Account at the amount equal to the taxpayer's deemed proceeds of disposition in respect of the 50% interest in the Account. Moreover, since the transfer of the 50% interest in the Account would be in favour of the taxpayer's spouse, the attribution rules in subsection 74.1(1) of the Act would apply, so that any income or loss, as the case may be, of the taxpayer's spouse from the 50% interest in the Account transferred to her or from property substituted therefor, would be deemed to be that of the taxpayer and not that of his spouse throughout the period during which the taxpayer is resident in Canada and the transferee remains his spouse.

For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Canada Customs and Revenue Agency's electronic library. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the electronic library version, or they may request a severed copy using the Privacy Act criteria, which does not remove client identity. Requests for this latter version should be made by you to Mrs. Jackie Page at (819) 994-2898. A copy will be sent to you for delivery to the client.

Yours truly,

Alain Godin
Section Manager
for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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