How is interest taxed on a joint account?

Last updated: August 7, 2020

So you’ve made the decision to merge your saving, spending, and earning into a joint account with one or more people—smart move! But once it’s time to sit down and do your taxes, who claims the interest earned?

Like any source of income, interest earned on a savings account—individual or joint—is subject to tax. When it comes to reporting joint savings, many assume the interest earned can be split evenly between account holders, or split in whichever ratio the account holders wish. Others assume only the primary holder whose SIN is attached to the account must report interest earned.

The Canada Revenue Agency (CRA), unfortunately, doesn’t entertain assumptions. By law, banks are required to report to the CRA the details of the interest they pay to account holders. The CRA then verifies the investment income you report with the amount reported by your bank—if there are any discrepancies, your tax return will be adjusted and you may even be fined.

There is a specific way you must claim interest earned on your joint account, but don’t worry, it’s pretty straightforward.

Proportionate tax reporting

According to the CRA, interest earned on a joint account requires proportionate tax reporting, where each owner of a joint account reports their individual portion of the total interest. In other words, taxes are paid on the interest according to how much each co-holder contributed to the account.

Let’s look at a few different ways this could break down:

Scenario 1 Scenario 2 Scenario 3
You have a joint savings account with one other person and you both contributed equally throughout the year, the interest claimed must be divided equally between the two of you—a clean 50-50 split. If 60% of the contributions were made by you and only 40% were made by a co-holder, then you would declare 60% of the interest earned on your tax return and they would report 40%. If only one account holder contributed throughout the year, they claim all the interest earned, no matter how many other holders are on the account.

So it’s up to each account co-holder of the joint account to make the necessary amendments to their personal income taxes, as necessary, based on how much each contributed to the account.

At EQ Bank, our Joint Savings Plus Account allows for up to four people to hold a joint account, so those four people each need to report their contributions—meaning, diligent record-keeping throughout the year is highly recommended.

Joint account tax slip reporting

Each year, your bank will issue a T5 (Statement of investment income) tax slip in the name of the primary account holder only, though a copy of the T5 may be downloaded by a co-holder. The T5 will contain the names of each co-holder, but only the SIN of the primary holder.

The CRA knows whose names are on the joint account, but it doesn’t know how much money each account holder contributed. Therefore, one T5 form will be sent out for the full amount of interest earned on the account. Each account holder is individually responsible for declaring the right amounts on their tax return.

At EQ Bank, we make the T5 available as a downloadable PDF file by no later than February 28 of every year.

Kudos to making the smart decision to manage your money jointly—and to earning interest while you’re at it! Remember, though, come tax time, you and your co-holders can’t split the interest any which way you choose. Consult with the CRA and/or a qualified tax advisor, if you’re uncertain of how to report your taxes. And if you have any lingering questions regarding your Joint Savings Plus Account, feel free to reach out to us.