Gifts of large amounts of money and property will attract CRA’s attention.
Follow these tips to limit the tax burden for the giver and receiver.
Gifts of property among family members are common and can be very welcome for the recipient and satisfying for the giver.
Although Canada has no gift tax, in some cases a gift can trigger tax rules that could increase your income taxes and prevent a win-win situation for both you and the recipient.
What are CRA’s policies on transferring property to family members?
Although Canada has no gift tax, in some cases, a gift can trigger tax rules that could increase your income taxes and prevent a win-win situation for both you and the recipient. Follow these tips to limit the tax burden for the giver and receiver
Income Splitting Strategies
These tax rules are in place to ensure that, first, taxpayers do not abuse income splitting strategies and, second, that CRA receives all income taxes to which is it rightfully entitled.
Income splitting is the strategy of moving income from a family member in a higher tax bracket to a family member with a lower tax bracket.
Since Canada has a graduated income tax system, the idea is to reduce the overall family burden.
The Income Tax Act, however, contains several income attribution rules that prevent Canadians from income splitting.
If you gift your spouse part of your income, they’ll still attribute it back to you and you’ll be taxed at the higher rate.
Attribution rules apply to several situations, including:
Note that in tax terms “transfer” has a broad definition that covers just about any way ownership of a property is moved from one person to another. A transfer includes both a gift and a sale.
Spousal Election to Avoid Attribution Rules
Property transferred at fair market value (FMV) is not subject to attribution rules (no tax owing).
If you want to transfer property to your spouse as a gift and still avoid attribution rules you must elect that spousal rollover rules do not apply. In that case, you then will report any accrued gains on the property and your spouse will report any future gains.
Should you sell or transfer property to a family member for less than fair market value (so you give them a cut rate but not an outright gift), not only could attribution rules apply, but CRA will adjust your “deemed proceeds” from the transaction upward to the property’s FMV. This triggers any accrued gains, which will be taxable.
Your relative will be deemed to have received property equal to whatever he or she paid for it, not its FMV.
Attribution rules apply to minor children regardless of the value of the transfer and you cannot elect out of it.
Do you have questions about tax policies on family gifts? We are here to guide you on every step. We offer tax planning, preparation and audit representation, bookkeeping, payroll, and financial planning to cover your complete financial needs. Feel free to contact us through our website filingtaxes.ca or reach out at 416-479-8532. Schedule your tax preparation appointment with us and take the first step towards proper management of your finances. Our professional personal tax accountants will make sure to get you the maximum tax refund on your personal tax return.
Disclaimer: The information provided on this page is intended to provide general information. The information does not consider your personal situation and is not intended to be used without consultation from accounting and financial professionals. Salman Randhawa and Filing Taxes will not be held liable for any problems that arise from the usage of the information provided on this page.