After a joint spousal or common-law partner trust is created with a contribution of jointly-owned property by an individual and the individual’s spouse or common-law partner, further contributions are made by the spouses or common-law partners. For example, subsequent to the initial contribution by Spouse A and Spouse B, they contribute portfolios X and Y, respectively, to a joint spousal trust of which they are discretionary capital beneficiaries such that s. 75(2) applies to both. How is income computed respecting the contributed property?
CRA indicated that any income or loss from the portfolio X investments, or property substituted therefor, would be deemed to be the income or loss of Spouse A, and any taxable capital gain or allowable capital loss from the disposition of such investments or property substituted therefor will be deemed to be the taxable capital gain or allowable capital loss of Spouse A – for so long as such property continues to be held by the trust, and while Spouse A is resident.
The implications would be the same for Spouse B and portfolio Y.
CRA went on to indicate that s. 75(2) does not apply to second-generation income, because this income is not earned on property that was contributed to the trust, or property substituted therefor. For example, if the property received by the trust from a person is cash, and that cash is deposited by the trust into a bank account, the interest on the initial deposit would attribute to that person; but any interest earned on the interest left to accumulate in the bank account would not attribute.