Transferring Assets to a Spouse: Rollover and Attribution Rules in Canada

Many couples move investments or property into one spouse's name, often for simplicity or planning. The first question is whether the transfer triggers an immediate capital gain. The second is who pays tax when the property is later sold or produces income.

This article explains the spousal rollover and the attribution rules in plain terms, including the exceptions. It is general information, and your own facts may change the result, so a lawyer or accountant can confirm how it applies to you.

This article covers Canadian federal tax law, which applies in every province.

Why spouses are treated differently

Most gifts of capital property are treated as a sale at fair market value on the date of the gift, so the giver reports a capital gain or loss. A gift or transfer to a spouse or common-law partner is the exception. It generally occurs at the adjusted cost base (ACB), with no gain or loss, which is the rollover. The transferor can elect out of the rollover.

The rollover defers tax; it does not remove it. Your spouse takes over your ACB, so the gain that built up while you owned the property is still there when it is sold.

How attribution works

If your spouse sells the property, the gain is generally attributed back to you, the transferor. That means you report it, not your spouse, which can defeat the idea of moving income to the lower earner. Attribution of capital gains under section 74.2 applies to a spouse or common-law partner.

After a relationship breakdown there is relief. For transfers made after May 22, 1985, the transferor may avoid reporting the attributed gain by filing an election with their return.

• Default: transfer at ACB, no gain or loss now.
• Option: elect out of the rollover and report the gain now.
• Later sale by the spouse: gain generally attributed to the transferor.
• Relationship breakdown: an election may avoid reporting the attributed gain.

Children and other relatives compared

Attribution works differently for minors. Income or loss from property transferred or lent to a person under 18 who does not deal at arm's length with you, or who is your niece or nephew, is treated as your income or loss. This stops at the end of the year in which the minor turns 18. Capital gains attribution under section 74.2 applies to a spouse or common-law partner, not to a minor child, so a child's capital gain on gifted property is not attributed back under that section, though income such as interest or dividends is under section 74.1(2).

Selling below market value and other traps

A sale to a non-arm's length person, such as a relative, for less than fair market value is treated as proceeds at fair market value. The buyer's cost remains the lower price paid, so the same gain can be taxed twice.

The superficial loss rule also catches spouses. A loss is superficial if you or an affiliated person, including your spouse or common-law partner or a corporation either of you controls, acquires the same or identical property from 30 days before to 30 days after the sale and still owns it at the end of that period. A superficial loss cannot be deducted and is usually added to the cost base of the substituted property. Owner death and becoming a non-resident are among the situations not treated as superficial losses.

What to do next

• Record the ACB and fair market value of each asset before any transfer.
• Decide with your adviser whether to keep the default rollover or elect out.
• Keep a note of the transfer date and who paid for the property.
• Check who is buying and who is selling in any trades within 30 days of a loss, including trades in your spouse's account.
• Report any sale on Schedule 3 in the year it occurs, and file even if no tax is owing.

Frequently asked questions