There are lots of reasons that you might give someone a cash gift. Parents, for example, often gift large sums of money to their children for weddings, for a down payment on their home, or for other reasons. But are these cash gifts tax free in Canada?
What portion of it is taxable? What about other types of gifts like property? These are all important questions we need to answer when filling out our taxes, so allow us to help you.
How Much of a Cash Gift is Tax Free in Canada?
Here’s the good news – if you want to give your children a lump sum of money as a gift, it’s completely tax free. In other words, you don’t have to pay taxes on gifted money, no matter who you receive it from. This is true regardless of whether the giver and the receiver are related or not.
There are two main types of gifts that people can give: “inter-vivos” and “testamentary”. Inter-vivo gifts are those that are given during your lifetime. Testamentary gifts are those that are given after your death, and are often found in your will. Both inter-vivo and testamentary gifts are tax-free in Canada if given in the form of cash or money.
And here’s more good news – you can gift as much money as you want without being taxed. In Canada, there’s no limit on how much you can gift someone. Whether you gift them $500 or $30,000, it’s all completely tax-free.
My Employer Gave Me a Cash Gift. Is it Taxable?
Unfortunately, gifts from an employer to an employee do not follow the same rules as other gifts. In most cases, these gifts are considered a taxable benefit. These are generally filed under “Gifts, Awards, and Social Events”. If you need help determining whether or not a gift is taxable from an employer, you can find more information on the Canada.ca website.
Are gifts of property Taxable in Canada?
There are lots of occasions where someone may be gifted property instead of cash. Many parents, for example, leave their property to their children after death. Gifts of property are considered different than gifts of cash and are taxable in Canada.
To be more specific, any home that is given as a gift, and is not considered your primary residence, is subject to Capital Gains Tax. This is based on the Fair Market Value at the time of gifting.
Fair Market Value is “the highest price, expressed in dollars, that property would bring in an open and unrestricted market, between a willing buyer and a willing seller..” (Source: canada.ca)
Let’s say, for example, that the original price of the home was $300,000. At the time of gifting, the value of the home was priced at $500,000. This means that you will pay Capital Gains on 50% of $200,000. In other words, you will be paying tax on $100,000.
In summary, cash gifts are generally non-taxable in Canada, unless they are received from an employer. Property gifts, on the other hand, are subject to certain taxes.