14 May 1996 External T.I. 9608955 - JOINT INVESTMENTS - INCOME ATTRIBUTION

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.

Principal Issues:

Application of attribution rules to income arising from various joint investments.

Position:

Question of Fact as to extent attribution rules will apply. General comments provided.

Reasons:

Departmental position.

		960895
XXXXXXXXXX	D. Zion

May 14, 1996

Dear XXXXXXXXXX:

Re: Income Tax on Joint Investments

We are writing in reply to your letter of March 5, 1996, in which you request our comments on the applicability of the attribution rules in the Income Tax Act (the "Act"), related to income arising from joint investments.

You have outlined a number of hypothetical situations in which investments have been jointly registered to two spouses, or to an adult child and his or her parent, where the initial funds for the investments were contributed wholly by one or the other registered parties or by both in a given proportion.

The following comments are of a general nature only to provide you an overview of how the specific provisions of the law work in regard to the attribution of income.

Our Comments

Investment information slips, such as T5's, prepared by financial institutions are usually made out in the names in which a bank or joint investment account is registered. Generally, for income tax purposes, the income is required to be reported in the same ratio as the contribution made by each account holder. If the effect or result of a transfer or deposit of funds to a joint account is to transfer or gift property from one spouse to the other, or from an adult parent to a minor child, then the income tax implications are complex and it is not possible to give you all-encompassing guidelines.

The Department's position regarding the attribution of income between spouses is explained in Interpretation Bulletin IT-511R "Interspousal and Certain Other Transfers and Loans of Property." As mentioned in paragraph 2 of this bulletin, when an individual has transferred or loaned property (including money) to the individual's spouse, any income or loss from the property or property substituted for it is deemed to be the individual's income or loss for a taxation year. A transfer includes a sale whether or not at fair market value, as well as gifts. For instance, when one spouse does not contribute any funds to the purchase of a property but ownership is jointly registered to both spouses, there has been a transfer of property from one spouse to the other at the time of purchase. Accordingly, the attribution rules found in subsections 74.1(1) and 74.2(1) of the Act will generally apply. When the transferred property is cash, which is in turn used for investment purposes or to purchase other property (" substituted property"), any income or loss realized from such property, and any capital gain or loss from the disposition of the transferred property (or substituted property), is deemed to be the income or loss, or the capital gain or loss, of the individual transferor and not of his or her spouse. It is always a question of fact as to whether, in any particular situation, the attribution rules apply.

As discussed in Interpretation Bulletin IT-510, "Transfers and Loans of Property made after May 22, 1985 to a Related Minor," subsection 74.1(2) of the Act generally provides that where an individual has transferred or loaned property (including money) to a related minor or to a trust in which a related minor is beneficially interested at any time, any income or loss from the property or property substituted therefor is deemed to be income or loss of the individual for a taxation year. An exception is made for a minor who has attained the age of 18 years before the end of the year. When transfers to minors are concerned, taxable capital gains or allowable capital losses arising from a subsequent disposition of the transferred property or property substituted therefor, do not attribute to the transferor under subsection 74.1(2) of the Act.

In contrast, when property is transferred or gifted to an adult child (18 years or older), attribution will not be applicable to income generated from the gifted or transferred property. If, for example, a parent gifts cash to his or her adult child for the purpose of purchasing Canada Savings Bonds, the income on such bonds will not be attributable to the parent since the cash was transferred outright to the child. We would caution, however, that if the terms and conditions of the transfer or gift do not serve to divest, deprive or dispossess the parent of title to the deposited funds and to vest the property in the adult child's hands, then it may be concluded that a transfer of property has not been made and the income generated from the property will be taxable to the parent.

Subsection 69(1) of the Act applies to a gift of property to an adult child. In such cases, the transferor is deemed to have received proceeds of disposition equal to its current fair market value, thereby triggering a taxable capital gain or an allowable capital loss, at the time of the transfer. The recipient adult child is deemed to have acquired the property at its fair market value at that same time.

We are enclosing interpretation bulletins IT-510 and IT-511R that discuss some of the concepts described above in greater detail. Should you have any further questions regarding this matter, we suggest that you contact your local Revenue Canada Tax Services office. Upon provision of all the facts of the situation, they will be in a position to assist you.

Yours truly,

John F. Oulton
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch