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No Gift Tax in Canada

Friday, February 18, 2011

...no gift tax in Canada, but beware...

W

hile at the gym the other day, someone asked me what the limits were for gifting property to his children. I told him there were no limits.

"Maybe you're thinking of the U.S. They have a gift tax," I said. I didn't want to bother him about the gift tax details and how it was designed to thwart tax planning for the U.S. estate tax.

"So I can give any amount to my kids?"

I nodded, "But there's exceptions." Too many I thought.

First, I explained under the Income Tax Act how he and his children are related. Dah! Seems obvious, but the act defines who is related and sets out rules that kick in between related persons. When it comes to gifting property from one related person to another, the act says the disposition occurs at fair market value and that means a potential capital gain on the gift.

"But I'm giving him cash, how can there be a gain?"

"There isn't," I said, "As long as it's Canadian dollars, there's no gain or loss. With foreign currencies there may be a forex gain."

"A what?"

"A foreign exchange gain. The currency rates change over time. When you calculate the amounts in Canadian dollars you could have a forex gain or loss."

"I see, but that's not me. So I've got nothing to worry about."

"If you're only giving cash, you're okay, but if you give shares or your cottage to your children, there's could be a capital gain and tax hit."

He looked at me as if I were joking.

"I'm serious. You have to be careful with shares or cottages. You can end up with a tax bill and no money to pay it."

"I wasn't thinking of doing that."

"Okay."

"Thanks, time to run my laps."

He was gone before I could tell him about the other exceptions. Like legal issues around death and divorce--Family Law issues. Or when you give money to your children, it belongs to them and they can do with it as they please--you lose control over it. I'll mention it to him some other time.

At least he doesn't have to worry about the attribution rules. His children are all over the age of 18.

I wonder if he has any grandkids who are minors?

Posted 2011/02/18 at 20h54ET in Estate Planning.

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