Can I give money to my wife to invest? [Archive]

ghostryder

Nov 22nd, 2008, 10:38 PM

Hi, I am in the highest tax bracket, and my wife doesn't work outside the home.

I was wondering if I could give her money to invest so that any money she makes off those investments wouldn't be taxed, or at least taxed at a much lower rate.

Yes, but...

any interest or dividends earned on the money would be attributed to you for tax purposes.

There is no attribution with respect to capital gains.

You can contribute to a spousal RRSP. There is no attribution on this. I believe you will also be able to fund a TFSA without the attribution rules applying.

duner

Nov 22nd, 2008, 10:46 PM

So if i contribute to a spousal RRSP, do I get to claim the tax break?

br0pbr0p

Nov 22nd, 2008, 10:59 PM

So if i contribute to a spousal RRSP, do I get to claim the tax break?

Yes. When you make the RRSP contribution, make it to an account in your wife's name instead of yours.

duner

Nov 22nd, 2008, 11:05 PM

Thanks,

That should hold me over for a few years re: what to do with excess cash. And the TFSA makes sense, since no tax will be charged, it can't be applied to me :D.

83_gemini

Nov 22nd, 2008, 11:14 PM

Depending on how much money you have you could do a variety of other intriguing tax avoidance procedures (the CRA's view on this varies :twisted:).

I didn't know the TFSA is exempt from attribution too.

If you have kids I believe there are certain transfers you can make to them too that could be advantageous.

As usual consult your local accountant and/or lawyer before engaging in serious tax avoidance.

Thalo

Nov 22nd, 2008, 11:24 PM

-You can contribute to a spousal RSP, the money is invested in her name and eventually becomes her retirement income, you get the tax deduction this year.

-You can give her money to contribute to her own RRSP and this won't be attributed back to you as there is no tax until it is withdrawn.

-You can give her money to invest in a Tax Free Savings Account (in January) and again there is to attribution as this investment wouldn't be taxed at all.

-You can loan her money at the prescribed interest rate (see CRA website or talk to an accountant) and she can invest it. Investment income isn't attributed back to you but she has to pay you interest, which she can deduct but that you have to pay tax on.

-You can devote your income to paying all of your living expenses, leaving her to invest 100% of any income that she earns or gets from the government.

sunnyminz

Nov 23rd, 2008, 12:02 AM

So if i contribute to a spousal RRSP, do I get to claim the tax break?
Yes you do get a tax break just as if you were to contribute into your own RRSP, but if your wife doesn't work outside of home then she might not have too much contribution room because you can only contribute 18% of your spouse's income for the year, you might want to check her last year's Notice of Assessment to see what her limit was then and keep that in mind before you start putting money into her RRSP.

Also your spouse can't withdraw the money out from the plan until 2 calendar years after your last contribution and if she does withdraw before the 2 calendar years, it'll be considered as your income and you will taxed at it accordingly.

Thalo

Nov 23rd, 2008, 01:17 AM

Yes you do get a tax break just as if you were to contribute into your own RRSP, but if your wife doesn't work outside of home then she might not have too much contribution room because you can only contribute 18% of your spouse's income for the year, you might want to check her last year's Notice of Assessment to see what her limit was then and keep that in mind before you start putting money into her RRSP.

Also your spouse can't withdraw the money out from the plan until 2 calendar years after your last contribution and if she does withdraw before the 2 calendar years, it'll be considered as your income and you will taxed at it accordingly.

Contributions limits for a spousal RRSP are based on the contributor's limits, not the spouse's.

duner

Nov 23rd, 2008, 01:37 AM

Contributions limits for a spousal RRSP are based on the contributor's limits, not the spouse's.

This will be troublesome as I will have already maxed out my own contribution limit.

Yes you do get a tax break just as if you were to contribute into your own RRSP, but if your wife doesn't work outside of home then she might not have too much contribution room because you can only contribute 18% of your spouse's income for the year, you might want to check her last year's Notice of Assessment to see what her limit was then and keep that in mind before you start putting money into her RRSP.

My wife did work for many years, so has stored up quite a high contribution limit. There's just no need to for her to work now that I'm making more money. If I just give her money for her RRSP, at least I won't be taxed on the investment income she makes off of it though.

Thanks for the tips. I'll definitely consult my accountant when we meet up. It's only twice a year. Once in the middle as a kind of "check" to make sure everythings in place for tax season, etc. If there are any concerns, then we can fix them before tax season. Then of course for taxes.

MoreMiles

Nov 23rd, 2008, 02:36 PM

You can open a corporation and make her a shareholder to receive dividends. You can also pay her as an employee to keep your paperwork and office management, etc.

nobody1234

Nov 23rd, 2008, 03:12 PM

You can open a corporation and make her a shareholder to receive dividends. You can also pay her as an employee to keep your paperwork and office management, etc.

You could pay her for sex.

ghostryder

Nov 23rd, 2008, 06:31 PM

You can open a corporation and make her a shareholder to receive dividends.

May or may not be an option depending on the OP's line of work.

You can also pay her as an employee to keep your paperwork and office management, etc.

Only if you pay her a legitimate wage for actual work.

You could pay her for sex.

He's married, he already is. :D

tng11

Nov 23rd, 2008, 06:44 PM

You could pay her for sex.

But wouldn't that be counted in his wife's income? Therefore it would be taxable.
:)

Johnny Walker

Nov 23rd, 2008, 06:51 PM

You could pay her for sex.

Of course, she would need to issue an invoice so that there is a paper trail in case the CRA audits you or her. In addition, if she is paid over 30K, she would have to register for GST, charge and extra 5% and remit it to Ottawa

StefanS

Nov 23rd, 2008, 07:58 PM

This will be troublesome as I will have already maxed out my own contribution limit.

My wife did work for many years, so has stored up quite a high contribution limit. There's just no need to for her to work now that I'm making more money. If I just give her money for her RRSP, at least I won't be taxed on the investment income she makes off of it though.

Thanks for the tips. I'll definitely consult my accountant when we meet up. It's only twice a year. Once in the middle as a kind of "check" to make sure everythings in place for tax season, etc. If there are any concerns, then we can fix them before tax season. Then of course for taxes.

Since you have maxed out your contribution limit, it would be wise to use extend a loan to your wife at the prescribed CRA rate as mentioned above, which she can invest in her RRSP (as she has a high contribution limit as mentioned

Edit - Note, that the interest must be paid within 30 days of the year-end or the investment income will be taxed in your hands.

duner

Nov 23rd, 2008, 09:45 PM

Of course, she would need to issue an invoice so that there is a paper trail in case the CRA audits you or her.

So the invoice would be proof enough for the CRA right? They wouldn't need any pictures/videos as "proof of purchase":lol:

Seriously though, thanks for the tips. The less tax the better. It's not how much to make, but how much you can keep right!

StefanS

Nov 23rd, 2008, 10:24 PM

Depends if your auditor is lonely or not. ;)

Merlocke

Nov 23rd, 2008, 11:09 PM

StefanS

Nov 23rd, 2008, 11:34 PM

There are real estate backed structures available to Canadians that allow for a purchase of a portion of property in which you'd be able to take advantage of the expenses generated by said property for a number of years. (akin to a flow through share).

Once the property starts to cash flow and become an income (and therefore another tax liability) you could always transfer the ownership to your wife where the earned income would be taxed at a lower rate.

A property transfer would still result in taxation to the original owner instead of the wife would it not? Unless the transfer is made at FMV, at which point the owner could face a possible capital gain taxation, if I am correct.

Thalo

Nov 24th, 2008, 02:39 AM

Since you have maxed out your contribution limit, it would be wise to use extend a loan to your wife at the prescribed CRA rate as mentioned above, which she can invest in her RRSP (as she has a high contribution limit as mentioned

Edit - Note, that the interest must be paid within 30 days of the year-end or the investment income will be taxed in your hands.

Wouldn't be necessary to do a prescribed rate loan if it's for an RSP contribution as the investment is tax deferred.

StefanS

Nov 24th, 2008, 07:13 AM

Wouldn't be necessary to do a prescribed rate loan if it's for an RSP contribution as the investment is tax deferred.

That would be true except he has maxed out his own contribution limit to his RRSP. Therefore, he can't claim a tax deduction on that money at all even though its an RRSP contribution. To circumvent that he can do a prescribed rate loan to claim a tax deduction and only have to pay tax on a small percentage (the interest), instead of the whole sum.

Thalo

Nov 24th, 2008, 07:45 PM

That would be true except he has maxed out his own contribution limit to his RRSP. Therefore, he can't claim a tax deduction on that money at all even though its an RRSP contribution. To circumvent that he can do a prescribed rate loan to claim a tax deduction and only have to pay tax on a small percentage (the interest), instead of the whole sum.

I don't follow. He's tapped out his RRSP contribution but his wife has contribution room. He simply gives his wife the money, she contributes to her own RRSP and there are no ongoing tax liabilities and thus to attribution to him.

If he did a prescribed rate loan, yes he would pay tax on the interest but his wife wouldn't be able to deduct the interest from her income as it's for an RRSP contribution.

smihaila

Nov 24th, 2008, 08:02 PM

There is no attribution with respect to capital gains.

Are you sure about that? I thought it applies only for when giving money to a child, into an in-trust account.

chococrazy

Nov 24th, 2008, 11:56 PM

I don't follow. He's tapped out his RRSP contribution but his wife has contribution room. He simply gives his wife the money, she contributes to her own RRSP and there are no ongoing tax liabilities and thus to attribution to him.

If he did a prescribed rate loan, yes he would pay tax on the interest but his wife wouldn't be able to deduct the interest from her income as it's for an RRSP contribution.

I actually agree with StefanS. I think I read that somewhere.. of course, I can't remember where or find it now.

If I find it, I'll post it here.

Edited: OK I found a link that explains attribution rules for spouses. You'll note that you are on the line for the interest/gains if you give money to a spouse and they invest it.

http://www.advocis.ca/content/education/newsletters/CFP-may08.html

duner

Nov 25th, 2008, 12:11 AM

That would be true except he has maxed out his own contribution limit to his RRSP. Therefore, he can't claim a tax deduction on that money at all even though its an RRSP contribution. To circumvent that he can do a prescribed rate loan to claim a tax deduction and only have to pay tax on a small percentage (the interest), instead of the whole sum.

Let's see if I'm following correctly.

If I loan money to my wife, the amount of the loan, say 10 000. She invests in an RRSP and there will be no tax on the investment income b/c it's an RRSP.
In addition to this, I get a tax break on the 10 000 that I'm loaning her, but have to claim the interest as "income".

If I just give money to my wife, the 10 000 will be taxed as my income before I give it to her, but the RRSP investment income will still be tax free. No interest payments needed.

Overall I'd be losing out if I just gave her the money, because the money is taxed as the highest rate on my income tax.

Thalo

Nov 25th, 2008, 01:47 AM

I actually agree with StefanS. I think I read that somewhere.. of course, I can't remember where or find it now.

If I find it, I'll post it here.

Edited: OK I found a link that explains attribution rules for spouses. You'll note that you are on the line for the interest/gains if you give money to a spouse and they invest it.

http://www.advocis.ca/content/education/newsletters/CFP-may08.html

Again, the guy was originally talking about the wife doing an RRSP contribution with the money in which case there are no regular taxes to attribute to to him. If the wife invested it outside of the RSP then yes, as I originally mentioned in this post, a spousal loan at a prescribed rate would have to be set up.

Let's see if I'm following correctly.

If I loan money to my wife, the amount of the loan, say 10 000. She invests in an RRSP and there will be no tax on the investment income b/c it's an RRSP.
In addition to this, I get a tax break on the 10 000 that I'm loaning her, but have to claim the interest as "income".

If I just give money to my wife, the 10 000 will be taxed as my income before I give it to her, but the RRSP investment income will still be tax free. No interest payments needed.

Overall I'd be losing out if I just gave her the money, because the money is taxed as the highest rate on my income tax.

Okay, you're just totally confused.

-there is no additional tax break for loaning money to your wife for her to put into an RRSP

-whether you give the money to your wife or not, it's taxed in your hands. The objective is to get future income on the money taxed in her hands, as mentioned:
a) you contribute it to a spousal RSP
b) she contributes to her own RSP or TFSA
c) set up spousal loan at prescribed rate for non-registered investment

StefanS

Nov 25th, 2008, 02:41 AM

Yeah, sorry duner, I think I got a little confused mixing up the situations. Thalo has it mainly right but let's see if I can make it clearer.

If you want to give money (say $10k) to your wife to invest outside an RRSP:
- If you gift her the money, any resulting income and capital gains from the investment will be attributed to you and taxed at your higher rate
- To prevent this, you can extend her a prescribed CRA rate loan for 10k to invest, and this would mean only the interest would be taxed at your higher rate, while any resulting income and capital gains would be taxed in her hands
- This would make a lot of sense to do especially now because the current prescribed interest rate for taxable benefits is very low at 3% (2008, Fourth Quarter) and this rate can be fixed for the entire loan
- End result - you will be taxed for that $10k as part of your income, your income will increase by $300 (3% of $10k) but any capital gains or resulting income will be taxed in her hands

If you're considering manipulation RRSP contributions to manage your taxes:

To be honest, I could try to explain this myself but I would probably be a lot more confusing and I wouldn't have the good examples found on this page. Check it out, it's a really good read and well explained with RRSP contributions with a spouse:
http://www.investopedia.com/university/rrsp/rrsp4.asp

duner

Nov 25th, 2008, 11:05 AM

AllWheelDrift

Nov 25th, 2008, 12:53 PM

I get it now. Just confused on the investing inside vs outside a tax sheltered investment.

What I'm going to do is just give my wife money for her TFSA, Then give her money to max out HER RRSP, then I'll consider loaning her money for any unregistered investments.

Correct?
The problem with giving your no-income wife money to put in RRSPs is because she has no income, the deduction the RRSP contribution generates can't be used (until she has income.) RRSPs take advantage of the fact that your tax rate at retirement is expected to be lower than your current tax rate, but if your wife has no income, her tax rate is zero while her tax rate may be non-zero when she withdraws from her RRSP. (At the very least she'll be using part/all of her personal exemption which otherwise you could use causing you to pay more taxes.) In conclusion, it's probably not a good idea to give you wife money to contribute to her RRSPs unless she will have significant income (this could include RRSP withdrawls) at some point in the future.