The tax implications of transferring a stock between spouses

When taxpayers own an asset, they may need to consider the difference between legal and beneficial ownership. When an asset is in someone’s name, they may have legal ownership of the asset, but that does not necessarily mean they have beneficial ownership. Beneficial ownership is based on who the true owner of the asset is, including for income tax purposes. 

If you and your wife contributed equally to the original purchase of the stock, Joe, you may both be legal and beneficial owners. If only one of you contributed to its purchase but you simply opted for joint ownership originally, one of you may be the true beneficial owner. 

I will assume that you both contributed equally and have reported the dividends, if any, equally over the years since your original purchase. In other words, you are both equal legal and beneficial owners.

The adjusted cost base of assets

When spouses transfer capital assets like stocks between them, during life or upon death, the transfer takes place at the asset’s adjusted cost base. For a stock, that will be the original purchase price or the total of the cumulative purchases and any other relevant adjustments. As a result, no capital gain takes place on transfer. 

However, you can elect to have the transfer take place at a value between the adjusted cost base and the fair market value. There may be a reason to do this to trigger a capital gain, including if you have net capital losses from previous tax years carried forward, Joe. 

What is attribution?

If half the value of the shares is beneficially yours, half the future dividends and capital gains on sale should be taxed to you after a transfer. This is a concept called attribution. When spouses gift or transfer assets between each other, subsequent income is attributed back to the transferring spouse. Attribution does not apply to assets received upon the death of a spouse.

Can you save on taxes by transferring stocks?

If your primary motivation for making this transfer, Joe, is because your wife will pay less tax on the future income, the strategy may not work. That said, there may be other options to split income with a lower income spouse. 

If a taxpayer lends money to their spouse and charges the prescribed rate of interest by the Canada Revenue Agency (CRA), the recipient spouse can report the future income. So, you could lend money to your wife to invest, and she could report the future income, if she did so after receiving a prescribed rate loan. 


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