In Canada, there is absolutely nothing like a gift tax, there is nothing like receiving a gift and getting taxed from it and this includes a gift of money. There are many gifts that have been given which are tax-free.
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However, there are certain conditions where giving or receiving gifts can lead to taxable income, and then taxes will be paid in these circumstances which will be discussed below.
Gifts in form of Capital Property
Capital Property is a property that has the tendency to give its owner capital gain or loss as the case may be when sold off. There are several assets that when evaluated, can give rise to capital gains as such can be referred to as capital Property. They are;
- Land and Landed Properties (Buildings)
- Patents rights and trademarks
When a taxpayer transfers ownership of the capital property to someone who is the recipient, for when a taxpayer transfers capital for a lesser value than the prevailing market price, there are certain rules that demand that the value be adjusted to suit the current market price for the purpose of tax.
The taxpayer who gives the gift has been said to have disposed of the property at fair market value. This means the taxpayer who is the giver has capital gains from disposing of the property.
Except the taxpayer gifted the property to a spouse or common-law partner. If on the other hand, it was disposed below the market value, then it’s a loss. The taxpayer will be barred from claiming a capital loss through a stop-loss rule or superficial loss. This rule does not apply to the person who receives the gift.
However, the gift will be a source of a large capital gain for the receiver when they will want to sell it off or dispose of the gift too.
Gift of Money and Non-Monetary Gifts Got from Employers
When an employee receives a gift from his employer, such gift is regarded as taxable. The gift will be regarded as a part of an employee’s income, and for every income, there is a tax attached.
However, in Canada, there is a general practice by the Canadian Revenue Agency where you don’t have to report every non-cash or awards gift.
What is required of the employee to report is where he has received non-cash gifts or awards from the employer. The employee reports the non-cash or awards that exceed 500 dollars.
The employee should not put into consideration non-cash gifts like a ball pen when calculating the 500 dollars gifts. According to the Canada Revenue Agency, for the purpose of administrative policy, a gift is something one receives on a special occasion Canada Revenue Agency is defining a gift as something received for a special occasion, say a birthday.
Therefore, following the administrative policy, cash and near-cash gifts must be reported always.
Gifts from Taxpayers who have unpaid taxes – Section 160
The income tax act, on section 160 states that taxpayers who owe Canada Revenue Agency can use gifts so that the collection Department of Canada Revenue Agency will not seize their assets because of unremitted tax.
When a taxpayer who is owing taxes to the Canada Revenue Agency transfers an asset to another person as a gift, for a value less than the market price, then will the section 160 assessment arise.
Gifts and Tax Credits
There are special kinds of gifts given to specific entities. Those special gifts can result in tax credit to the giver of the gift. The tax credit is limited to a certain amount of the gift given. A tax credit is given to special gifts as earlier stated.
These special gifts can be gifts given to the government of Canada, gifts given to provinces or territories, gifts given to registered charity organizations, registered municipals, and to the United Nations.
There is always a report to the Canada Revenue Agency whenever a taxpayer receives an asset suddenly especially when no taxes are paid on the asset received. The Canada Revenue Agency will portray the gift or asset transaction as taxable to ensure tax is deducted from these amounts.
Therefore, to prove that this asset is a gift to the Canada Revenue Agency, one will need to establish a paper record of all gift transactions. This is known as a deed of gift, and it will be drafted out at the time the gift was transferred.