You might think that giving generous gifts of property or other
assets to family members would be fairly cut-and-dried affair. Not
so. As I outlined in
my previous article, the Canada Revenue Agency stands ready to
take a (sizeable) piece of the action if you're not careful
about what you transfer, to whom, and how. It gets even trickier
where transfers of real estate are involved. Here's what you
need to know to avoid being socked with a large tax bill as a
penalty just for trying to be nice.
Principal residence transfers
You can transfer your home by gifting it, and if the home was
properly designated as your principal residence for each year you
owned it, the transfer will be exempt from tax. (If your home was
only a principal residence for some years and not others, the
portion of the exempt gain is pro-rated accordingly.)
For the home to qualify as a principal residence, you (or your
spouse or child) have to have ordinarily inhabited it.
A transfer of a second home (that is, a non-principal residence)
can be made to your adult and/or married child and qualify as a
principal residence for the child.
Although you will be liable for any accrued gain up to the time
of the transfer to your child, assuming the home remained your
child's principal residence, any further gain would be
In Ontario, one perk of gifting your principal residence to a
family member is that no land transfer tax will be triggered,
because this tax is based on the "consideration" paid by
the person receiving the property. When documenting the transfer
with the registry office, you should note that the consideration is
"nil," if it is a "gift for natural love and
affection." This way, the family member receiving the gift
won't have to cough up tax to the Ontario government on that
transfer. For those living in Toronto, this is a double gift,
because you will also avoid the additional municipal land transfer
tax (which, when added to the provincial tax, results in double the
land transfer tax).
Beware, however, of Section 160 of the Income Tax Act. That
little rule is designed to prevent you from avoiding tax by
transferring property to your family members. You and the family
members(s) to whom you made the gift may all be liable for any
pre-existing tax, not only for the year of the gift, but also any
The tax liability is limited to the difference between the value
of the consideration (usually nothing if it's a gift) and the
fair market value of the gift. Note that there is no limit on the
interest on the tax owed by either party.
Canadian gift tax?
Canada's gift tax rules were repealed back in 1971 as part
of the major tax reforms of that year. The rationale behind this
change was that since any accrued gains on capital assets would be
taxable at death, the combination of this tax with the gift tax
would result in a huge tax hit upon death.
However, the United States has not been so kind, and continues
to tax gifts by any U.S. individual. Still, so long as you are not
gifting property that is located in the U.S., don't worry about
gifts to family members south of the border. The U.S. gift tax will
generally not apply to gifts of intangible property by a non-U .S.
citizen or gifts of tangible personal property and real property by
a non-U.S. citizen if the property is not located in the U.S.
If, however, you are a U.S. citizen – even if you are a
resident in Canada for tax purposes – the U.S. gift tax rules
will still apply to you, so make sure that you consider the U.S.
rules before making any substantial gift.
Note: there are certain annual exemptions in the U.S. for gift
tax, as well as a lifetime exemption.
Virtual currency trading value and volume is soaring globally, but regulating virtual currencies and those who provide virtual currency exchange services (Exchangers) is challenging.
Some comments from our readers… “The articles are extremely timely and highly applicable” “I often find critical information not available elsewhere” “As in-house counsel, Mondaq’s service is of great value”
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).