Last updated: Oct. 7, 2023
Gifting money and transferring property from one family member to another are common, and although Canada doesn’t impose a gift tax, gifting of certain assets may trigger certain tax rules that could increase your income taxes – which can catch people by surprise.
However, in some situations, gifting money and property in Canada may offer your small business tax-saving benefits. Let’s take a look at how gifting money, property, and more works in Canada.
Gifting in Canada 101
A gift is a voluntary transfer of personal property that someone gives freely with no contractual restrictions. To be considered a gift, one party must give it by choice to another party without expecting anything in return.
Because the Canada Revenue Agency (CRA) doesn’t charge the recipient tax on gifts, the CRA doesn’t consider any money received or given as a gift taxable as long as it doesn’t involve the transfer of goods or services. If one person gives a lump sum of money to another, that amount is not tax deductible and not included in taxable income.
If the gift includes property other than cash, the property is considered sold by the giver, so it may need to be reported on their income tax return. If the FMV of the gift is more than the original cost, the giver will need to report the capital gain on the transfer of the property.
Can I Receive Tax Credits for Gifting in Canada?
Canadian taxpayers who make charitable donations may be able to claim tax credits under section 118.1 of the Income Tax Act—as long as the taxpayer gives the money to a certain type of organization: a registered charity or a registered municipality. However, the amount of the tax credit issued is calculated based on the value of the qualified gift. If the amount given to the charity included a ticket to an event, or receipt of something of value (i.e. a calendar, etc.), then the value of the “advantage” must be removed from the donation amount. The qualifying value is the difference between the item’s fair market value and the amount of an advantage.
Previously, the credit’s total was 15 percent on the first $200 and 29 percent on any donations above that amount. However, when the highest personal tax bracket (i.e. income above $235,675 in 2023) of 33% was introduced, a 2016 amendment to the donation credit was also introduced, so a tax credit rate of 33 percent (i.e. the same high rate of tax) is applied to any charitable donations of more than $200 made after 2015 as long as a person’s taxable income surpassed $200,000 in 2016 and $202,800 in 2017. The top bracket is now $235,675 as of 2023.
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1. Gifting in Canada: Employee Gifts
Employers can claim the total cost of employee gifts as a tax-deductible expense, and employees may not be required to declare a gift’s cost as part of their taxable income. Generally, the CRA considers all gifts given to employees taxable benefits with the following exceptions:
- Noncash gifts (may include certain gift cards) up to $500 annually
- Noncash gifts that are less than $500 in value for long service recognition every five years
- Employer-related functions and social events valued at less than $100 per person
- Corporate swag, including items such as mugs, T-shirts, hats, coffee, and snacks
2. Gifting in Canada: Gifts to Clients
When it comes to clients, only certain types of gifts are considered tax deductible for employers. For example, if a business owner buys a bottle of wine or box of chocolates for a client, it’s considered fully tax deductible. However, meals and entertainment gift cards, such as spa packages and restaurant cards, are only 50 percent deductible.
Employers should make sure to write down the name of the client on any receipts for gifts in case the CRA asks for receipts.
3. Gifting in Canada: Gifts to Family
If you want to give property to your spouse as a gift and avoid attribution rules, you must elect for spousal rollover rules to not apply, and payment must be made. This election must be filed with the income tax return of the relevant year. In that instance, you will report any accrued gains on the property, and your spouse must report any future gains. The year the gift is made, the giver would have to report any capital gains (i.e., the fair market value at the time of the gift is considered the proceeds) and fair market value must be paid. If the recipient spouse does not have adequate funds, a spousal loan may be issued.
Attribution rules apply in a number of situations, such as when assets are gifted or sold to a spouse without electing out of the automatic spousal rollover, or when gifted to a minor family member (child, niece, etc).
If you sell or transfer property to a family member in Canada for less than its fair market value, the CRA will adjust your proceeds from the transaction to the property’s fair market value. Attribution rules may apply, depending on the nature of the property and the relationship between the parties.
When selling or transferring property within a family, you may also be required to pay double tax on a certain portion of any accrued capital gains because the recipient will be taxed again on gains made between their actual cost and the fair market value at the time of the transfer. However, if you give the property to your family member as an outright gift, the family member’s cost is “bumped” up to the fair market value, thereby avoiding this double-tax issue.
Gifting in Canada to Underage Family Members
When gifting property to family members who are under 18, any income earned from that property is attributed to the transferor. However, this rule doesn’t apply to the transfer of property for use in the business of a spouse or minor, which would result in business income.
If you transfer the property to your spouse, any capital gains or allowable capital losses on subsequent disposal of that property are attributed to you. However, if a property is given to a direct family member under 18, such as a child, grandchild, niece, or nephew, the capital gains or losses won’t be attributed to you. And while any dividends will be attributed to you until they reach 18, capital gains on the sale of the assets won’t be.
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