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When Are Gifts or Inheritances Taxable?
No Gift Tax in Canada
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.
Gifts or Loans to a Spouse or Related Minor Child
See our article on attribution rules re gifts, transfers, or loans to a spouse or a related minor child.
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.
Selling Capital Property Non-Arm's Length For Less Than Market Value
As pointed out by the Video Tax News team in the April 2019 Life In The Tax Lane video, there could be a problem if capital property is sold to a non-arms-length person for less than FMV.
See Technical Interpretation 2018-0773301E5 Paragraph 69(1)(c) and Nominal Consideration.
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!
Gifts From an Employer May Be a Taxable Benefit
Gifts from an employer to an employee will likely be considered a taxable benefit to the employee.
In 2022 CRA announced new and updated administrative policies regarding gifts, awards, and long-service awards. Certain non-cash gifts and awards may not be taxable, including:
A non-cash gift or award given for one of the above reasons, including gift cards that meet all conditions for the card to be considered non-cash is not taxable if the combined total fair market value of all non-cash gifts or awards to the employee in the year is $500 or less, including taxes. Do not include the following in the $500 limit:
A long service award provided to an employee will not be taxable if all of the following apply:
A non-cash gift or award given to an employee that do not meet the above conditions is a taxable benefit and the fair market value must be included in the employee's income.
A reward that is provided to your employees for performance-related reasons is a taxable benefit for the employee.
A cash or near-cash gift provided to an employee is taxable. This includes reimbursements, where the employee selects and purchases something and then submits a receipt to the employer, receiving cash or a cheque in return.
Near-cash, which is taxable when provided to an employee, includes:
The above information is found on the CRA article 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".
Capital Property Owned at Death
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.
Gift From Someone in Debt to Canada Revenue Agency
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
Can the CRA Pursue The Beneficiary of Your Life Insurance Under Section 160 of the Income Tax Act? from Taxpage.com
Real Estate Sales - Are They Taxable? What About My Principal Residence?
Employees - Taxable Benefits and Tax-Free Benefits
Revised: February 05, 2023
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