Giving to family members
In general, there are no immediate tax issues to consider when giving cash to a family member – unless you are a US citizen. U.S. citizens may be subject to U.S. gift tax if they donate more than $ 15,000 per year to someone other than a spouse. Gifts from a US citizen to their non-US citizen spouse are subject to an annual indemnity of $ 159,000.
If you give money to a minor child or grandchild and the money is subsequently invested, the resulting income – including interest and dividends – will be attributed to you or taxed. However, capital gains are not subject to the attribution rules and are taxable when they are realized to the child or grandchild you have given. If you are giving cash to a child or grandchild who is 18 or older, there is no attribution.
A gift to a spouse results in the imputation of income and capital gains. Attribution can be avoided by setting up a family trust and obtaining a loan at the Canada Revenue Agency’s prescribed interest rate (currently 1%), but it can be costly and complex and therefore require significant effort. A spouse loan can also be granted at the prescribed rate in order to have later income taxed by the receiving spouse; This is an easier way to give a gift and split the income with a lower income spouse.
If you give an asset, such as an investment, holiday home or rental property, to a family member other than the spouse, that asset is subject to a fictitious disposition (as if you had sold it). The donation is made at the fair market value of the property, with every capital gain being taxable for you. When it comes to real estate, too, you can’t mess around and try to avoid this by letting the gift be given at an artificially low value.
Although donated assets to a spouse may accrue at the adjusted cost base and not at market value, the subsequent income and capital gains are subject to attribution.
In some cases, a loan can be better than a gift. It can give you the confidence to part with a larger amount knowing that you can ask for the loan to be repaid. For reasons of family law, a loan can help ensure that a gift is not separated from a divorced son-in-law or daughter-in-law; It will be repaid by your child and their spouse in the event that the relationship breaks up.
Loans can also make sense if you have several children, have given one child more than another and want to ensure equality in the future as well. The greater amount, when offered as a loan, can be owed to your estate on your death to ensure an even distribution of your wealth among all of your children, if that is your intention.
Donations to charities
Donations of investments in lieu of cash can be beneficial as unregistered investments that have increased in value can be transferred in kind to a charity. The charity issues a fair market value donation receipt as if you had given cash, but the capital gain from the presumed disposal is not taxable.