Give while you live

There are tax ben­e­fits of giv­ing your heirs money while you’re still alive


While there are a num­ber of rea­sons for a par­ent to con­sider pass­ing on a liv­ing in­her­i­tance to adult chil­dren, one that may be over­looked is tax sav­ings.

Cash and as­sets that par­ents have no in­ten­tion of spend­ing while they’re alive — what tax and es­tate plan­ning ex­pert Jamie Golombek calls “never money” — may wind up cost­ing more than nec­es­sary in fees and taxes.

“If mom and dad have never money, all they’re do­ing is grow­ing a pile of wealth and pay­ing tax ev­ery year on that in­come, per­haps at a very high tax rate,” says Golombek, who is a mem­ber of the CIBC Wealth Strate­gies Group.

“Whereas that money could be used by the kids and per­haps in­vested at a lower tax rate or used to pay down debt.”

No gift tax in Canada

What many peo­ple don’t re­al­ize, Golombek adds, is that Canada has no gift tax.

As a re­sult, cash given to chil­dren, grand­chil­dren or any other in­di­vid­ual while you’re alive won’t be taxed.

“If you want to give them $1 mil­lion to­mor­row, it’s not re­portable any­where. It doesn’t show up on their returns. It’s not in­come,” says Golombek.

How­ever, the giver could be li­able for tax on cap­i­tal gains if the gift is prop­erty that has ap­pre­ci­ated in value — as might be the case with a fam­ily cot­tage or a port­fo­lio of stocks.

But that isn’t to say there aren’t any tax ad­van­tages to gift­ing ap­pre­cia­ble as­sets to your chil­dren while you’re alive.

For ex­am­ple, a par­ent in a high tax bracket that gifts funds from a large non-reg­is­tered port­fo­lio gen­er­at­ing tax­able in­vest­ment in­come to a child could po­ten­tially avoid fu­ture claw­backs of Old Age Se­cu­rity, says Ja­son Heath, a fee-only fi­nan­cial plan­ner with Ob­jec­tive Fi­nan­cial Part­ners in Toronto.

“If you’re a se­nior who’s get­ting OAS clawed back, you’re pay­ing a min­i­mum of 43 per cent tax and you could eas­ily be pay­ing up to 62 per cent tax de­pend­ing on your prov­ince of res­i­dence,” Heath says.

“So there’s a good chance there are some tax-sav­ing op­por­tu­ni­ties by tak­ing non-reg­is­tered as­sets out of your hands and giv­ing it to a child to pay down their mort­gage or to make an RRSP con­tri­bu­tion.”

Could avoid or re­duce pro­bate fees

Golombek says an­other ben­e­fit of giv­ing your heirs an early in­her­i­tance is that it could help them avoid or re­duce pro­bate fees — an es­tate ad­min­is­tra­tion tax that varies by prov­ince but is based on the value of the es­tate.

“For ex­am­ple, in On­tario 1.5 per cent is the es­tate ad­min­is­tra­tion tax,” says Golombek. “But if you don’t own the as­set when you die, you don’t pay the tax. So trans­fer­ring wealth be­fore you die would min­i­mize (the tax).”

Be­cause the tax rules around gift­ing as­sets are com­pli­cated, Heath says it’s im­por­tant to so­licit ad­vice from the right pro­fes­sional.

“I’ve come across peo­ple who took ad­vice from a teller at the bank, or an in­vest­ment ad­viser or an ac­coun­tant with­out strong tax and es­tate plan­ning ex­per­tise, or a gen­er­al­ist lawyer whose not a tax and es­tate lawyer, who have given out­right in­cor­rect ad­vice,” he says.

“Peo­ple need to be sure that when they’re look­ing for tax or es­tate plan­ning ad­vice on a com­plex is­sue that they’re speak­ing to some­one who un­der­stands that is­sue.”

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