Gifting Assets to Family Before Leaving Canada: Departure Tax

Does gifting assets before leaving Canada avoid departure tax?

No, not by itself. Canada taxes a gift as if you sold the asset at fair market value (section 69(1)(b)), which is the same value departure tax uses for property you still own when you leave (section 128.1(4)(b)). For most investments the gain simply lands on your return a little earlier. For property departure tax leaves out, mainly Canadian real estate, a gift before you leave brings forward a gain that would otherwise be taxed only when you sell or give it away later as a non-resident. The one exception is a gift to a spouse or common-law partner while you both live in Canada: it can roll over at your cost, which moves the gain to your spouse rather than removing it.

Exception: farm or fishing property, or shares of a family farm or fishing corporation, can pass to a child resident in Canada at your cost (section 73).

A case stops being simple when the asset is private company shares, a large portfolio going to a spouse, an interest in a trust, or Canadian real estate, especially once you live abroad, or when your spouse may leave Canada later too. It also stops being simple if you already gave something away and did not report it. Gather, for each asset: what you paid (adjusted cost base), the value on the gift date, the planned departure date, and the residency of each person receiving a gift.

Gift to an adult child or parent: why is it taxed like a sale?

A gift to anyone other than a spouse is a disposition at fair market value. Section 69(1)(b) deems the giver to receive fair market value on a gift, and section 69(1)(c) gives the recipient a cost equal to that same value (section 69). The taxable part of the gain is 50% under the general rule.

The result matches departure tax almost exactly. Had you kept the asset, section 128.1(4)(b) would have deemed you to sell it at fair market value just before you left. Giving it away a month earlier mainly changes the date and the price on that date. The recipient's cost is the value on the gift date, so only later growth is taxed when they sell, but your tax bill does not go away.

It can cost more, or sooner, than departure tax. Departure tax skips Canadian real estate and, if you lived in Canada no more than 60 months in the preceding 120 months, property you brought with you (section 128.1(4)(b); see leaving Canada within five years of arriving); a gift of those is taxed now. And departure tax on property you keep can be deferred by election until you sell, with security only above a threshold (section 220(4.5) and (4.51); see deferring departure tax), while tax on a gift is due with your final return.

Gift to a spouse staying in Canada: does the spousal rollover work?

Yes, if both spouses are resident in Canada at the moment of the transfer. Section 73(1) deems capital property transferred to a spouse or common-law partner to pass at the giver's adjusted cost base, but only when "both the individual and the transferee are resident in Canada at that time" (section 73). The rollover applies automatically; you can elect out on your return for the year of the transfer and report the gain instead.

• Timing is the test. Transfer while both of you are resident: before your departure date, and before your spouse's if your spouse leaves first. A later transfer fails the residency condition and is a disposition at fair market value, which Canada taxes after you leave only if the asset is taxable Canadian property (see below).
• The gain moves; it does not vanish. Your spouse takes over your cost. When your spouse sells, or leaves Canada and faces departure tax, the full gain since your purchase is taxed. If your spouse leaves first while you are still resident, that departure gain stays with your spouse unless you both elect otherwise (section 74.2(3)).
• A rental building on which you claimed capital cost allowance (tax depreciation) rolls over at its remaining undepreciated balance, so the depreciation is not taxed back until your spouse sells (section 73(1)).

If your spouse is leaving too, on a different date, see spouses leaving Canada on different dates.

After I leave, does income on what I gave my spouse or child still come back to me?

Only for the period you are resident in Canada. Income from property given or lent to a spouse is taxed to the giver for the part of the year "throughout which the individual is resident in Canada" (section 74.1(1)). Capital gains your spouse makes on that property are attributed back on the same basis (section 74.2(1)). Once you are non-resident, that income and those gains are your spouse's. If the property is private company shares, dividends your spouse receives may still be taxed at the top rate under the tax on split income (section 120.4), depending on the business and your spouse's role in it.

Two cautions. First, the general anti-avoidance rule lets the CRA deny a tax benefit from a transaction whose main purposes include obtaining that benefit and that misuses the Act (section 245); whether a pre-departure spousal transfer is caught depends on the facts. Second, if you later return to Canada, attribution can resume. Whether your family staying behind affects your own residency is covered in family stays in Canada while you work abroad.

Is there a Canadian gift tax, and can the recipient's country tax the gift?

Canada has no separate gift tax. The tax on a gift is the giver's income tax on the deemed gain, and the CRA lists "most gifts and inheritances" among amounts a recipient does not report as income (CRA). A recipient living in another country may face that country's own gift rules. US citizens giving to family should read giving money or shares to family abroad.

Gifting after I'm already non-resident: what does Canada still tax?

After you leave, Canada taxes your gift only if the asset is taxable Canadian property, mainly Canadian real estate; investments already caught by departure tax are not taxed again in Canada when you give them away (T4058). Real property in Canada is excluded from departure tax (CRA), so it stays inside the Canadian tax net after you leave. A gift is a disposition at fair market value under section 69, so the section 116 process applies as it would to a sale.

1. For land and other non-depreciable property, notify the CRA within 10 days after the gift (section 116(3)), or request a certificate before it, on Form T2062.
2. Pay or secure 25% of the gain (fair market value minus adjusted cost base) to get the certificate of compliance.
3. File a Canadian non-resident return reporting the disposition (T4058).

Until a certificate is issued, the family member who receives the property is liable for 25% of its fair market value, or 50% for a rental building (section 116(5), (5.1) and (5.3)), with no sale price to hold it back from, and must remit it within 30 days after the end of the month of the gift unless the certificate has been issued by then (section 116(5) and (5.3)). A rental building has no after-the-fact notice route: it needs a certificate on Form T2062A, with a payment the CRA sets rather than the capital gain rate (section 116(5.2); T4058).

Real estate gifts also raise land transfer tax and title questions; see transferring property to family. For the full non-resident sale process, see non-residents selling Canadian property.

Gifts and Forms T1161 and T1243: what still has to be reported?

Assets you gave away before leaving drop off both departure forms, because they are no longer yours on the departure date. Form T1243 reports the deemed sale of property you own when you leave; Form T1161 lists reportable property you own just after leaving when its total value is more than $25,000 (section 128.1(9); CRA).

The gift itself is reported instead: a gift at fair market value goes on your final-year return as a capital gain (Schedule 3), dated before departure. A spousal rollover reports no gain but should be documented with the date, the cost carried over, and both spouses' residency on that day. For filling in the list, see the list of properties form.

Cash gifts and later sales: what cost base does the family member use?

A gift of Canadian-dollar cash has no gain to tax, since it is not an asset that grows in value. Income the recipient earns on that cash is theirs, except a spouse's or minor child's income while you remain resident (attribution above). For a gifted asset, the recipient's cost is fair market value on the gift date, or your own cost if it came through a spousal rollover (sections 69(1)(c) and 73(1)(b)). Give the recipient a written record of the date, the value and how it was set. To move your own money abroad, see moving your money out of Canada.

Red flags: gifts that are really loans or still under your control

Tax follows what really happened, so a transfer that is a gift on paper only can fail.

• You keep the benefit. If you still decide on the account, receive its income or can take the asset back, the CRA may treat the property as still yours on departure; the answer depends on the facts and the documents.
• Adding a name to an account. Making a child or spouse a joint owner may be a gift of part of the account, or may leave you the real owner if you keep funding and running it; which one depends on the facts, and it decides whether the account is on your departure forms.
• It is really a loan. Attribution covers property "transferred or lent" to a spouse or minor child (section 74.1), so calling a loan a gift, or the reverse, does not change the result while you are resident.
• A sale for a token price. Selling to family below fair market value deems you to receive full fair market value, but the buyer's cost stays at the low price actually paid, because the fair-market-value cost in section 69(1)(c) applies only to gifts (section 69(1)(b) and (c)), so the same gain can be taxed twice.
• Registered plans. RRSPs, TFSAs and pensions are already outside departure tax (CRA); money withdrawn from an RRSP or pension to give away is taxed as a withdrawal.

Example

These scenarios are illustrative, in Canadian dollars.

Portfolio to an adult daughter

A month before leaving, a parent gives an adult daughter staying in Canada an ETF portfolio worth C$200,000 that cost C$80,000. The parent reports a C$120,000 capital gain on the final-year return, the same gain departure tax would have reported. The daughter's cost is C$200,000, and the portfolio is not on the parent's T1243 or T1161.

Same portfolio to a spouse

Year 1: both spouses are resident on the transfer date, so the portfolio rolls over at C$80,000; no gain is reported. Dividends after the transfer, up to the departure date, are taxed to the giver. Year 2: the giver is non-resident; the spouse's dividends are the spouse's own. Year 3: the spouse sells for C$230,000 and reports the full C$150,000 gain.

Condo given after moving abroad

Two years after leaving, a parent gives a son a Canadian rental condo worth C$500,000 that cost C$300,000. The gift is a disposition at C$500,000. The parent applies for section 116 certificates (Form T2062 for the land, Form T2062A for the building), pays or secures the amounts the CRA requires on the C$200,000 gain and any depreciation claimed on the building, and files a non-resident return. Until the certificates are issued, the son is liable for a quarter of the land's value and half of the building's, due 30 days after the end of the month of the gift; C$500,000 is also his cost base.

Different for you?

• Your spouse is also leaving, on a different date: see spouses leaving Canada on different dates.
• You want to use the capital gains exemption on private shares first: see using the capital gains exemption before leaving Canada.
• The assets sit in a family trust: see family trust beneficiary moving abroad.
• You are gifting a home or adding family to a title: see transferring property to family.
• A large portfolio, private company shares or a trust is moving to a spouse before you leave: the rollover, attribution and anti-avoidance questions need judgment; get individual tax help.
• You already made a gift and did not report it, or you are giving Canadian real estate after leaving: the late or non-resident return, the section 116 certificate and the value you report need to agree; get individual tax help.
• You are a US citizen giving to family: see giving money or shares to family abroad.
• You need the full departure picture: start with leaving Canada and the leaving Canada tax checklist.