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Legal: Giving While Living

You have accumulated some assets. Why not consider the timing of the legacy you wish to leave?  

Giving While Living

"Giving while living" is becoming popular as more Canadians decide to spread their money around while they're still here to see its impact. Here are a few ideas on what can make a difference to their lives today:

  • Giving money to children, grandchildren and others to make their daily lives easier. Might be as simple as paying for their cell phone bill or ensuring they have gas money to get to and from work or, perhaps monthly fun money to a friend who no longer has any left once their bills are paid.

  • Paying for college educations.

  • Providing down payments for houses.  

  • Setting up trusts.

  • Paying for vacations.

This trend has significant implications for tax and estate planning – and for your own lifestyle. That’s why your first step toward making a ‘giving while living’ decision should be to take a look at your own finances.  

There is no gift tax in Canada so if you want to give the gift of cash, as per Revenue Canada Agency Miscellaneous Receipts NO: IT-334R2 section 4. Amounts received as gifts, that is, voluntary transfers of real or personal property without consideration, are not subject to tax in the hands of the recipient. Therefore gift of cash has no tax implications except that if the gift is made to your spouse, or to a child who is a minor, the "attribution rules" may have the effect of causing you to be taxed on the income earned on the gift.  

Another option is to give a ‘non-cash’ gift – maybe transferring stock to a child, or even the ownership of your family cottage – in that case, you will likely be triggering any unrealized capital gains (taxes you must pay on the profit or appreciation). For example, if the gifted stock or cottage has appreciated significantly in value, most of that value will be subject to an immediate capital gains tax (currently the taxable amount is 50 per cent of the appreciated value).  

Many people feel that selling the ‘gift’ for $1 resolves the issue as the law states that there must be a dollar value associated with it, hence the $1. It does not indicate that the consideration must be a fair market value. This does not solve the tax problem and may, in fact, make it worse. When assets are given to someone ‘at arm’s length’, the Canada Revenue Agency (CRA) deems that the donor received Fair Market Value (FMV) for the asset, no matter what it was sold for.  

You can give a gift to a minor if it’s a small gift, that’s pretty straightforward. If the gift is significant, it may be wise to wait. For instance, a minor cannot invest funds in their own name so future use of the gift can become problematic. In most cases, it’s best to make a large gift to a minor in your Will.

To make the best decisions for your situation, be sure to ask a tax lawyer or financial advisor to help you.

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