Estate only gets half of a joint bank account
Also, questions on avoiding capital gains and income splitting when one spouse works
Ownership of joint bank accounts and the tax consequences of property transfers were among the topics raised in recent reader letters. Here's what they wanted to know.
Q “In my father's will, his wishes were to divide his assets equally between my sister and me. The assets were my parents' home and money in his bank accounts. Unfortunately, one of the bank accounts was a joint account with my sister, which meant that on paper I can only receive a quarter of it. Is this how it gets divided or can I actually get half of the money in that account? The will clearly stated that the assets should be divided equally.”
A “Joint accounts are one of the most misused types of accounts in the financial industry. People open them often without knowing their legal and tax ramifications,” said François Bernier, a notary and director of tax and estate planning for Sun Life Global Investments in Montreal. In this case, when the father opened a joint account with the daughter, he effectively gave her half of the money held in the account. “So, unless you can show that your father's intention was not to give her the money, but to loan her the money, or only to allow her to transact in this account on his behalf, that share of the joint account will not be part of your father's estate and will belong to your sister,” Bernier said.
Q “Because I owed my daughter money, I legally gave her the West Island bungalow we both lived in a few years ago. She is now married, with a house of her own, and I pay her monthly rent to remain in the original house. Would it make sense to reacquire the house from her, so no capital gains will be owed when I pass away and I can apply for the tax credit on Schedule J (Revenue Quebec's Tax Credit for Home-support Services for Seniors)?”
A Not much would be gained from a transaction like this. Your daughter would still have capital-gains exposure for the years in which she owned two properties, and would owe that money the year the property transferred back to you (at fair market value, in the taxman's eyes, which could be significantly higher, given recent market strength). As a renter, you're already eligible for the Home-support Services credit on a portion of your rent and other eligible costs such as yard work and snow removal, provided you are at least 70 years old.
Q “I have questions about income splitting. If both spouses are over 65, but one contin- ues to work and has a higher income, and the other receives a small pension, can the total income be split? Or is income splitting only applicable to types of pension income?”
A Nowadays, it's limited to certain types of pension income. There was a brief period at the end of the Stephen Harper years when families with children under 18 could shift up to $50,000 of employment income between spouses, but the Liberals axed that. Current rules allow up to 50 per cent of qualifying pension income (pension plan, annuity and Registered Retirement Income Fund payments among them) to be shifted from one spouse to another on the income-tax returns, but both parties have to be on board. With few exceptions, the transferring spouse also must be 65 or older. Quebec Pension Plan payouts can be shared, but it has to be done in a separate application, not at tax time, with the sharing percentage determined in part by the period of cohabitation. Both spouses, in this case, need to be 60 or older. Old Age Security payments are not divisible.
Q “In 2019, we sold a house that was under my wife's name only. We now live in a rental unit. In February, we sold a condo under my name only, which had been occupied (rent-free) by my daughter. Can I claim the sold condo as my primary residence?”
A You could, but only for the years you did not claim the principal-residence exemption on the house sold in 2019. Family units can only have one property eligible for the principal-residence exemption at any one time, regardless of whose name is on the deed. Your daughter's occupancy of the condo you owned made it eligible for the exemption even though you weren't living there. So it qualified for 2020 and 2021. For 2019, it depends on whether you designated the house for the exemption that year.