Here is the original question:
What I am wondering about is when you are a couple, what is the best strategy or getting the best tax return from the interest paid on the HELOC used to buy investments?
- Does it matter whose name the investments are purchased under or should they be under both names?
- Does it matter who owns the HELOC or if it is jointly owned?
- If the HELOC is under both names, does the tax deduction for the interest paid get split between the two people?
It really depends on the financial situation of the couple. But lets look at the questions one at a time.
Does it matter whose name the investments are purchased under or should they be under both names?
- Typically, it’s whoever funds the investment account is responsible for the taxation on the account. However, investment loans are different. You can have both spouses on the “title” of the investment loan (ie. HELOC), but it’s the name (the one who submits their SIN) on the investment account that gets taxed (and obtains the right to claim the tax deduction).
- With that said, providing that you purchase tax efficient investments, it would be optimal to keep the investments in the name of the higher income spouse.
- It makes sense to claim the investment income under both spouses if both spouses are in the same tax bracket. This would help in future years when income splitting is a concern.
- According to Ed Rempel, although you can have both names under one investment account, you can choose who to charge the investment income. As long as you keep consistent through the years, this shouldn’t pose a problem.
Does it matter who owns the HELOC or if it is jointly owned?
- As mentioned above, if the HELOC is jointly owed, you can put the money into an investment account of either spouse, or a joint account.
If the HELOC is under both names, does the tax deduction for the interest paid get split between the two people?
- Again, it doesn’t matter if the HELOC is under both names, what matters is the name on the account that is investing the money. The owner of the account investing the money, is the owner of the tax deduction and tax liability.
Be sure to claim the investment loan under the spouse with the highest income. If both spouses have similar rates, then invest under both names.
I am not a tax professional, please consult an accountant before following any taxation advice you find here.If you would like to read more articles like this, you can sign up for my free newsletter service below (we will not spam you).