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Should my spouse and I open a joint investment account?

It depends on your specific circumstances, and needs. A joint investment account may appear to be convenient. And it some cases, it may save you money. But it could cost you money, too. There are some tricky income tax issues you need to sort out.

A joint investment account may muddy the waters, especially if you and your spouse are in different tax brackets. This has to do with income attribution rules.

Revenue Canada attributes investment earnings - and therefore the taxes - to whoever was the source of the money invested. If your family's investments are held in the same account, it may not be clear who actually earned the money. Revenue Canada may assume the money was from the higher-tax-bracket spouse. The earnings would then be taxed at that person's higher rate.

It may make sense to keep separate investment accounts for each of you. This way, it's clear where the money for an investment came from, and who is liable for the tax bill. You don't want to set yourself up for a dispute with Revenue Canada.

Any money going into your investment account would be from your sources - such as your employment earnings. You would pay for investments from that account. Similarly, any funds going into your spouse's investment account would be from his or her sources. All investments paid for by your spouse would be funded from that person's investment account.

In some cases, a joint investment account, with rights of survivorship, may be an advantage because it will delay an income tax bill. When the first spouse dies, the assets are not deemed, for tax purposes, to have been sold. Instead, the investment account is transferred to the remaining spouse. This defers taxes payable until the death of the second spouse.

If a person instead holds investments in a separate account without rights of survivorship, his/her death causes these assets to become part of the estate. And at that point, for tax purposes, the investments are deemed to have been sold. A deemed sale means Revenue Canada would then collect income tax on any earnings or capital gains from those investments.

A joint investment account can be used to reduce probate fees on your estate since the right of survivorship reduces the amount of your assets that go into your estate. Probate fees are charged by your province to process your estate. This expense is typically a percentage based on the value of your estate.

Whether you use separate investment accounts or joint investment accounts, don't forget to have most of the investing done by the lower-income spouse. This reduces your family's overall tax bill. More of the family's investments would be taxed at the lowest rate available to your family.

The lower-income spouse, of course, may have less income to invest. The higher-income spouse could pay most of the household bills. This leaves the lower-income spouse with money that can be invested at his or her lower tax rate.

The advantages and disadvantages of separate and joint investment accounts will depend to a great degree on your particular circumstances. Consider seeking professional advice from a tax expert or a financial planner.