Personal Income Tax -> Wills and Estates- > Gifts and inheritances
There is no "gift tax" in Canada. Any resident of Canada who receives a gift or inheritance of any amount, except from an employer, or as a tip or gratuity due to their employment, will not have to include this in their income. However, if the gift is received by a spouse or a related minor child, see the next paragraph re attribution rules regarding the income, if any, from the gift. If the gift is capital property, or is a gift from someone in debt to Canada Revenue Agency, there can be other complications - see below.
Gifting a Capital Property is a Disposition
However, if capital property (e.g. real estate, investments) is given as a gift, the person who has given the gift will be deemed to have sold the capital property at fair market value (FMV), and will have to pay tax on any resulting capital gain. The FMV is deemed to be the "cost" to the person to whom the shares were given. If money or capital property is given or loaned to a spouse or a related minor child, attribution rules will apply.
Subsection 69(1) of the Income Tax Act deems the proceeds to be at FMV when a taxpayer has disposed of a property non-arm's-length for no proceeds or for proceeds less than FMV. However, it only deems the acquisition cost of the recipient to be at FMV if the property has been acquired at a cost higher than FMV, or by way of gift, bequest or inheritance. It does not deem the cost to the recipient to be at FMV where the cost is less than FMV (inadequate consideration). This may result in the selling taxpayer to have deemed proceeds of FMV while the acquiring taxpayer must use the actual transaction amount as their cost, resulting in double taxation of the difference between FMV and the inadequate consideration.
If Taxpayer A had sold the property to Taxpayer B for $12,000, s. 69(1)(a) of the ITA applies to deem the acquisition price to Taxpayer B to be $10,000. The proceeds of disposition for Taxpayer A is still $12,000.
Tax Tip: If you plan to gift capital property or transfer it at less than cost, get professional tax advice first!
The above does not include gifts from an employer to an employee, which will likely be considered a taxable benefit to the employee. CRA has a series of questions that an employer can answer to determine if there is a taxable benefit. This is found on their web page Gifts, Awards and Long Service Awards. For more information on gifts or awards for employees, see the Canada Revenue Agency ( CRA) guide T4130 Employers' Guide Taxable Benefits, and search for the topic "Gifts, awards and social events".
There are tax consequences to the estate of a deceased taxpayer when capital property is owned at death. See How can you minimize taxes of a deceased taxpayer? from the Wills & Estates page.
Income Tax Act s. 160
If a tax debtor transfers cash or other property, directly or indirectly, by means of a trust or by other means whatever, to:
then the recipient of the cash or other property can be held liable to pay outstanding tax liabilities of the transferor, up to the fair market value of the property transferred, less the fair market value of anything that was given in return.
This applies, for instance, if a spouse transfers his or her interest in the family home to the other spouse. It could also apply if a private corporation pays dividends when there is an outstanding tax liability. See the arm's length article.
Related Tax Court Cases / Newspaper Articles
Dreger v. The Queen 2020 TCC 25 re daughters designated as beneficiaries of life income funds of a deceased tax debtor.
Gagnon v. The Queen 2010 re transfer of the husband's half of the family home
Hennig v. The Queen 2012 re payment of dividends from a corporation
Beware the tax nightmare disguised as a gift - Globe and Mail
Revised: June 17, 2022
Copyright © 2002 Boat Harbour Investments Ltd. All Rights Reserved. See Reproduction of information from TaxTips.ca