Can investment units be transferred to a spouse or children/grandchildren?


Investment units can be transferred to a spouse to facilitate income splitting. Many investors purchase the investment to provide tax relief for a high earning spouse for the first four years, and then when the major write-offs are exhausted, transfer the unit to the lower income spouse, who then takes the partnership income at a lower tax rate.

Transferring investments to children or grandchildren will incur liability for capital gains tax on 50% of the fair market value (FMV) of the investment less the adjusted cost base (ACB). To minimize tax exposure, this is best done once the tax write-offs have been taken and the FMV and the ACB are nearest in value.

A good mechanism for passing on investment units to family members is a trust. The units are transferred into the trust when the capital gains tax liability is lowest. The investor can continue to benefit from the income from the investment by taking income from the trust, or pass the income onto other beneficiaries as desired. As long as the investment is held in trust there is no further tax to pay except on income. Units will flow out of trust to capital beneficiaries without further capital gains tax consequences. **

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