Many clients ask us questions about taxes, estates, and financial planning. Since regulations can change over time, we often check with our FAST team before giving our thoughts and opinions. The FAST team is staffed by accountants and lawyers who previously worked in private practice. As a group, they keep us abreast of all the latest tax and legal developments so we can better serve our clients. Below, I highlight another scenario that I was able to answer with the assistance of the FAST team.

I was recently asked by a client to change the order of the names that appeared on their joint account. Since the tax slip was only addressed to the first person of the joint account, the client thought that the named person would be fully responsible for the tax owing, and the other account holder could not and should not report any income.

The Question:

Does it matter which name in the joint account comes first? Some of my clients have been instructed by their accountants to file investment income under the first person’s name because that was also the only SIN number that appeared on the tax slip. Often, whoever’s name is listed first will have their SIN number listed on the tax slip. So who is ultimately responsible for reporting this income?

The Answer:

It does not matter whose name is first on the account. The tax slip for a joint account can be used by all parties to the account to report their share of income as required. Physically, the tax slip only has space for one Social Insurance Number. Therefore, the CRA does not use that to determine who should be reporting the taxable income.

We have even seen tax slips for a joint account, where the issuer only listed one name on the slip. Some tax slips, but not all, will have additional coding that classifies a “recipient type”. For example, Box 23 on the T5 will be coded a “1” for an individual and a “2” for a joint account.

Regardless of how a slip is issued, taxes should be filed according to the tax rules. For an account held between spouses, the clients should have kept track of who contributed the funds to the account. The spouses should be reporting the income/gains in proportion to their contributions to the account. If one spouse contributed all of the funds, they should generally be picking up all of the income/gains earned in the account.  If both spouses contributed equally to the account then the tax burden should also be split equally.

There are also many situations where the tax slips don’t match the actual filing situation. For example, if ‘Spouse A’ gifted funds to ‘Spouse B’ to invest, all the income is attributed to ‘Spouse A’ to report on their tax return even though the tax slip is only addressed to ‘Spouse B’. You could also have a situation where a parent makes their account joint with their child but the parent has not given the child ‘beneficial ownership’ yet. In this case, the parent reports all of the income even though it is a joint account.

The CRA is aware that the tax slips may not necessarily match with what is being filed on the tax return. What is most important, is that filers can provide an answer if CRA asks for an explanation as to why they are filing in a particular manner.

For other ThinkFast! articles, you may refer to our Blog archives.

 

 

The content in this article is for information purposes only and does not constitute tax or legal advice. It is imperative that you obtain professional advice from qualified tax and legal advisors before acting on any of the information in this article. This will ensure that your own circumstances are properly considered and that action is taken based on the most current legislation