If you transfer property to your spouse or a family member who is under 18 years of age, any income earned from that property is attributed to you, the transferor. However, you and your spouse must both be Canadian residents at the time of the transfer. Making the gift or transfer of property to your spouse, as opposed to a child or other family member, usually will automatically occur on a tax-free basis, unless you elect otherwise. However, if you make an outright gift of the property to your family member, the family member’s cost is “bumped” up to the fair market value, thereby avoiding this double-tax issue. Your proceeds of disposition for the property would still equal the actual selling price you had set on the property at the time of the transfer. On the other hand, there also is a downside to giving property to a family member for a stated value that is higher than its FMV, as the family member’s deemed cost will be adjusted downward to the FMV. That’s because the recipient will also be taxed again on that portion of the gains between his or her actual cost and the FMV at the time of transfer which you will have already reported. In such a case, the family as a whole might end up paying double tax on a portion of any accrued capital gains. Your relative will be deemed to have received property equal to whatever he or she paid for it, not its FMV.Īttribution rules apply to minor children regardless of value of transfer and you cannot elect out of it.īook a free, no obligation 15-minute call to learn more. This triggers any accrued gains, which will be taxable. Should you sell or transfer property to a family member for less than fair market value (so you give them a cut rate but not an outright gift), not only could attribution rules apply, but CRA will adjust your “deemed proceeds” from the transaction upward to the property’s FMV.
In that case, you then will report any accrued gains on the property and your spouse will report any future gains. If you want to transfer property to your spouse as a gift and still avoid attribution rules you must elect that spousal rollover rules do not apply.
Property transferred at fair market value (FMV) is not subject to attribution rules (no tax owing). Spousal Election to Avoid Attribution Rules A transfer includes both a gift and a sale.Ĭlick here for a list of income splitting strategies that don’t break any of the attribution rules. Note that in tax terms “transfer” has a broad definition that covers just about any way ownership of a property is moved from one person to another. Capital gains/losses realized on property transferred to a spouse.Income and losses from property transferred to a spouse or minor family member.If you gift your spouse part of your income, they’ll still attribute it back to you and you’ll be taxed at the higher rate.Īttribution rules apply to several situations, including: The Income Tax Act, however, contains several income attribution rules that prevent Canadians from income splitting.
Since Canada has a graduated income tax system, the idea is to reduce the overall family burden. Income splitting is the strategy of moving income from a family member in a higher tax bracket to a family member with a lower tax bracket. These tax rules are in place to ensure that, first, taxpayers do not abuse income splitting strategies and, second, that CRA receives all income taxes to which is it rightfully entitled. Follow these tips to limit the tax burden for the giver and receiver Income Splitting Strategies What’s CRA’s position on transferring property to family members?Īlthough Canada has no gift tax, in some cases, a gift can trigger tax rules that could increase your income taxes and prevent a win-win situation for both you and the recipient. Gifts of property among family members are common and can be very welcome for the recipient and satisfying for the giver.Īlthough Canada has no gift tax, in some cases a gift can trigger tax rules that could increase your income taxes and prevent a win-win situation for both you and the recipient. Large gifts of money and property will get CRA’s attention.įollow these tips to limit the tax burden for giver and receiver.
0 kommentar(er)
