This discussion concerns joint accounts in all provinces except Quebec. The rules in Quebec are different than in the rest of Canada and the information contained in this article should be discussed with your tax advisor.
Why Have Joint Bank Accounts and Brokerage Accounts?
There are two common reasons for establishing joint accounts. First is to create an easily administrative account accessible to both parties. The second reason is as a tool to reduce probate taxes upon the death of one of the accountholders.
Issues and Pitfalls of Joint Accounts & Property
There may be negative consequences of transferring assets to a joint account that is with someone other than your spouse.
- Capital gains may be triggered if the assets are transferred to an account held with someone other than your spouse.
- You may lose control over the property and decisions may no longer be made without the consent of the other party.
- If one of the account holders becomes bankrupt the joint account will form part of the bankruptcy.
- If you as a parent have a joint account with one child but not the others a conflict may arise as the joint owner child becomes the owner of the assets.
- If there is a breakdown in the marriage an account held joint with an adult child may be divided in the divorce.
- The principal residence exemption may be compromised.
Probate & Joint Accounts
In all provinces except Quebec a probate tax may be levied on the value of the estate. This tax may be reduced or eliminated through the establishment of joint ownership with the right of survivorship. Upon death of one of the holders, the ownership fully passes to the surviving owner. However, there is typically a deemed disposition for tax purposes and the estate would be responsible for any capital gain or income on its proportional ownership of the assets. The only exception would be if the account is held jointly with your spouse, in which case there is no capital gain or loss upon transfer.
Do You Have A Question?
If you have a question about this article, please feel free to leave a comment in the box below. Your comments and questions are welcome and help others.
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{ 2 comments… read them below or add one }
how about the calculation of estate (toward a probate fee) in the case of a joint debt? Does the whole debt get deducted from the the estate (bring down the probate fee) or only 1/2 ?
@Paige: In Ontario, only real estate debts are deducted for probate purposes. If real estate is owned jointly, then the corresponding mortgage is as well.