Dear Nancy Woods,
How does income splitting work in retirement insofar as non-registered accounts? Currently, I have an account in my name alone. Will I have to add my husband as a joint owner before we can split the income? My original thought was to keep the account in my name alone as my husband is in a much higher income tax bracket and this money is an inheritance from my family.
Sincerely,
Jean
Dear Jean,
If your husband has a higher income, and depending on how much higher, I don't understand the reason why you would think you would need to income split from your assets. Especially, if the assets were the result of an inheritance, and were never in his name, in Ontario at least, they would be protected in the case of marital breakdown. You would have to get legal advice specific to your province of residence.
If you think that his income would be lower in retirement (possibly due to pension income splitting with you), and you would then have the higher total income when including your investment income, you could consider a spousal loan.
This requires specific documentation, such as a loan agreement and promissory note. Right now the prescribed loan rate is as low as 1 per cent. There must be a payment for the interest by Jan. 30 of each year at the rate set when the loan was set up. The numbers may not make sense for this strategy if the total loan amount is less than $100,000.
Just adding his name to your account does not allow for the income to be automatically split.
Get tax and financial advice and see whether it makes sense to do it or not.
Nancy Woods, CIM, FCSI, is an associate portfolio manager and investment advisor with RBC Dominion Securities Inc. To ask her a question, send an e-mail to asknancy@rbc.com
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