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The only money that has ever been transferred into this account has been the proceeds from the sale of our jointly owned house. We have had no capital gains since opening the account, but are curious about how to report capital gains when the time comes to sell a holding. Can we split this, or would only one of us enter this on our tax return?
–Paul

A. An important concept with investments and other assets is the distinction between legal and beneficial ownership. If two people’s names are on an investment account, like you and your wife, Paul, you may legally own the account as joint tenants with right of survivorship. This means if one of you dies, the account passes directly to the survivor.

There is another type of shared ownership called tenancy in common, often used for real estate. This is when two or more people own an asset together, but there is no right of survivorship. This is more common when siblings own an asset, or when married or common-law spouses in a second marriage own an asset together. Upon death, the share of the deceased can be distributed based on their will rather than being made over to the survivor. 

Regardless of how an investment account is held between spouses, there is a tax concept called attribution that may apply. Attribution is when income earned by one spouse is attributed back to the other spouse and taxable to them. Simply adding a spouse’s name to an investment account does not circumvent attribution. Future interest, dividends, capital gains and other income may be attributable back to the first spouse. 

There are legitimate ways to avoid attribution. A spousal loan at the Canada Revenue Agency (CRA) prescribed rate of interest, currently 1%, can be used. A trust can be established with funds loaned at the prescribed rate. Or, with careful tracking, the second-generation income earned—income on the initial income—may avoid attribution. 

Paul, your question distinguishes between the dividends you have reported in the past and the capital gains you may report in the future. The CRA does not treat different types of investment income differently when considering attribution between spouses. Both dividends and capital gains are subject to the attribution rules. 

I should also point out that just because CRA has accepted your previous tax returns as filed and has not asked questions—or has not asked them yet—it does not mean they agree with the position you have taken on your tax return. I have seen tax returns with significant investment income reported by stay-at-home spouses and where taxpayers have taken a questionable stance with attribution, sometimes inadvertently. 

Many spouses have joint non-registered investment accounts and split the income equally on their tax returns. Technically, if they did not contribute equally to the account, the split should be something other than 50/50. Practically, the 50/50 allocation is common.