Question on deemed disposition of an asset.

[alanbrenton]

To quote a portion of page 7 of the book 101 Tax Secrets for Canadians 2006, "Any time you give an asset away, you are deemed to have sold it at fair market value. So if the property has gone up in value since you acquired it, you could have a tax bill to pay. A common exception is when you give the property to your spouse. In this case, your spouse acquires it at your original cost, so there won't be a tax bill to face until your spouse disposes of the property."

Could anyone confirm as to which type of asset classes the bolded red section would pertain to? And is there any risk that the CRA might challenge such a transaction? For securities, I believe it's the 61-day window when you dispose and repurchase (through the spouse) the said securities.

[Rifle]

I guess if one were to transfer the title to their spouse, but then again, you lose complete control of that asset.

What if she sells the house and runs, you have obsolutely no control or no right to get anything from it.

This tax avoidance works if you really trust your spouse i guess.

[alanbrenton]

It's primarily for income splittting purposes.

[TopTaxGuy]

Hi,

The tax laws in Canada prevent you from giving capital assets to your spouse. If you give an asset to your spouse there is no deemed disposition and when the spouse sells the asset the capital gain is taxed in your hands! Similarly all primary income from the asset are also taxed in your hands.

This is called "attribution rules" and I have written on the income attribution rules (http://taxresource.ca/taxstrategies/incomesplitting_attribution.html).

If you still want to give the asset to your spouse you'll have to arrange the transaction in such a way as to make it an arms lenght transaction. Take a look at the above link as well as my article on Tax Planning and Income Splitting Opportunities in Canada (http://taxresource.ca/taxstrategies/incomesplitting_opportunities.html).

TTG