Gift From Parents in Canada to a US Resident: Cash, Shares, Loans

Is a gift from parents in Canada taxable in the US?

A cash gift from parents in Canada is not income on your US return. Gross income excludes property received by gift (26 U.S.C. 102). Canada generally taxes a gift only through the giver, and only when the gift is property that has grown in value. A gift is treated as a sale at fair market value (Income Tax Act s. 69(1)(b)). Cash has no such gain. One Canadian rule does reach you: if your parents owe Canadian tax for the year of the gift or an earlier year, including tax on a deemed sale the gift itself creates, the CRA can collect it from you up to the value you received minus anything you paid (Income Tax Act s. 160(1)).

What makes a case not simple:

• The gift is shares, a cottage or other property, not cash. Canada taxes your parents' gain now, and the US may tax the same growth again when you sell.
• The gifts are large. Form 3520 is due once gifts from your parents together pass the IRS threshold.
• It is a loan, or you are added to their account. Each country may read the arrangement differently.
• The money already came, maybe years ago, and no Form 3520 was filed. The form is late and penalties can apply; read the late-filing steps before you file anything.

What to gather: a dated gift letter, bank records showing the money came from your parents, the value on the gift date in Canadian and US dollars, and your parents' original cost records, with purchase dates, for any shares or property. Their holding period counts toward yours for gifted shares (Publication 544).

Do I file Form 3520 for a gift from my parents in Canada?

You file Form 3520 when gifts from a nonresident alien (neither a US citizen nor a US resident, such as Canadian parents who hold no green card and do not spend enough days in the US to be US residents), combined with gifts from related people such as the other parent, exceed US$100,000 in your tax year. Once over that line, you list each gift above US$5,000 (IRS: Gifts from foreign person; Form 3520 instructions). The form is generally due April 15 for a calendar-year individual. A missed form can cost 5% of the gift per month, up to 25%. Form 3520 reports the gift; it does not tax it. For thresholds, down payments and late filing, see gifts and inheritances from abroad.

Parents in Canada gifting stocks or a cottage to a child in the US: who pays?

Your parents pay Canadian tax on the gain, as if they had sold at fair market value on the gift date (s. 69(1)(b); CRA: Transfers of capital property). Generally 50% of that gain is taxable to them. A cottage that qualified as their principal residence may shelter some or all of the gain; see transferring property to family.

The US does not start you at that value. For a gift worth at least the giver's cost, your US basis (the cost your gain is measured from) is the giver's adjusted basis (26 U.S.C. 1015(a); Publication 551). The code makes no exception for a giver who lives abroad. When you sell, your US gain is measured from your parents' original cost, so growth that happened before the gift can be taxed twice: once in Canada now, once in the US later.

The Canadian tax your parents paid is not your tax, so it gives you no US foreign tax credit. The treaty's election to be treated as having sold and bought back property (Article XIII(7)) is made by the person treated as selling, not by the person who receives the gift. Whether any other treaty article gives relief depends on the facts of the transfer.

If the property is worth less than your parents paid, US basis for a loss is the lower value on the gift date (Publication 551).

Cash after they sell, or the asset itself?

If your parents sell first and give cash, the pre-gift growth is taxed once, in Canada. If they give the shares, the same growth can be taxed again in the US when you sell. Canada taxes your parents' gain the same way in both cases. The difference is on your side: cash has no built-in gain, while gifted shares carry your parents' old cost into your US return.

This is a comparison, not a plan. A family company, a principal residence, or shares your parents want to keep in the family change the answer.

What if I inherit the same property instead?

At death, Canada taxes a deemed sale of the parent's capital property at fair market value on the final return (Income Tax Act s. 70(5)). Your US basis is generally the fair market value at the date of death (Publication 551). So the gain Canada taxed is not taxed again in the US, unlike a lifetime gift. Executor withholding and clearance certificates are covered in inheriting from a Canadian estate as a non-resident. A parent's RRSP, RRIF or TFSA follows different rules: see inheriting a Canadian RRSP, RRIF or TFSA.

A loan from parents in Canada: what does each side report?

A real loan has written terms, a repayment schedule and repayments that actually happen; a "loan" that is never meant to be repaid is a gift and counts toward Form 3520. Interest you pay your parents is income they report in Canada. Under the treaty, interest arising in the US and beneficially owned by a Canadian resident is generally taxable only in Canada (Article XI(1)). An individual who pays US-source interest to a foreign person is a US withholding agent: a zero treaty rate needs the lender's Form W-8BEN before the payment, the payer still files Forms 1042-S and 1042 even when nothing is withheld, and a payer who should have withheld is personally liable for the tax (Publication 515). If the loan is low- or no-interest and you invest the money, Canada can treat that investment income as your parents' income while they live in Canada, when one of the main reasons for the loan was to reduce tax (Income Tax Act s. 56(4.1)); a loan that charges at least the lower of the prescribed rate when it was made and an arm's-length rate, with each year's interest paid within 30 days after year end, is outside this rule (s. 56(4.2)).

The US below-market loan rules, which impute interest on low- or no-interest loans, generally do not apply when the lender is a foreign person, such as a parent living in Canada who is not a US citizen or resident (26 CFR 1.7872-5T(c)(2)). For a parent who is a US citizen or green card holder they can apply once more than US$10,000 is outstanding, and at any amount if you use the loan to buy or carry investments (26 U.S.C. 7872(c)(2)). Forgiving a loan later is generally a gift of the forgiven amount, which counts toward the Form 3520 threshold for that year.

Being added to a parent's Canadian bank or brokerage account

Adding you as a joint owner can mean two different things in Canada: a gift of a share, or you holding the account for your parents. For a joint account, Canada generally has each owner report interest based on how much they contributed (CRA: Line 12100). If your parents mean to give you a share, that share is a gift, and on the US side it counts toward your Form 3520 threshold; for a brokerage account with gains it is a deemed sale of that share under s. 69(1)(b). If you are added only for convenience and your parents keep the money, the arrangement may be treated as a trust. Which reading applies turns on the facts, mainly who put the money in and what your parents intended when they added you. A dated note of that intent helps either way.

On the US side, being a joint owner, or only able to sign on the account, brings it into your FBAR. If your foreign accounts together exceed US$10,000 at any time in the year, you file an FBAR (IRS: FBAR), and Form 8938 may also apply. See your first FBAR after moving from Canada. Canadian mutual funds or ETFs in the account raise PFIC questions: see Canadian ETFs and mutual funds after moving to the US.

Canadian real estate given to me while I live in the US

The gift is a deemed sale for your parents in the year they give it (s. 69(1)(b)). Canada treats you as acquiring the property at fair market value (s. 69(1)(c)), while your US basis is generally your parents' cost. If the property is rented, you become a non-resident landlord from the gift date: see non-resident landlords; the rent also goes on your US return. When you later sell as a non-resident, you follow Canada's section 116 steps and report the sale on your US return. Canadian tax on your own sale may be claimed as a US foreign tax credit, but the US gain can be larger than the Canadian one because it starts from your parents' cost. See non-residents selling Canadian property.

What if my parents are US citizens living in Canada?

A US citizen or green card holder parent is not a nonresident alien, so your Form 3520 reporting does not apply to their gifts. Instead, they may need to file a US gift tax return (Form 709). If a parent gave up US citizenship or a long-held green card and is a covered expatriate, gifts to you above US$19,000 a year can carry a 40% US tax that you pay (IRS: Gifts from foreign person; 26 U.S.C. 2801). See giving money or shares to family abroad.

Example

All figures are illustrative, in Canadian dollars unless marked US$, at an assumed rate.

Cash for a down payment

Parents in Calgary give their son in Denver C$150,000 cash, about US$110,000. Neither country taxes the gift. Because the gifts from both parents together exceed the Form 3520 threshold, he files Form 3520 separately from his income tax return and keeps the gift letter and bank records.

Shares instead of cash

The parents give shares worth C$150,000 that cost them C$50,000. They report a C$100,000 gain in Canada, half of it taxable. The next year he sells for C$155,000. His US gain is the sale price in US dollars minus his parents' C$50,000 cost converted at the rate when they bought, so roughly C$105,000 of growth is taxed again, though only C$5,000 grew while he owned the shares. The Canadian tax his parents paid gives him no US credit. Had they sold and given him the C$150,000, their Canadian tax would be the same and he would have no US gain.

The same shares inherited

The parents keep the shares until death, when they are worth C$150,000. Canada taxes the C$100,000 gain on the final return. His US cost is the C$150,000 value at death, converted to US dollars, so selling soon after for C$155,000 brings a small US gain.

Different for you?

• Your parents want to give shares, real estate or a family company: model both countries before the transfer with cross-border tax help.
• The gifts pass the Form 3520 threshold, or a past form was missed: see gifts and inheritances from abroad and get cross-border tax help.
• The money is a loan with interest: withholding, documentation and imputed-interest questions are part of cross-border tax help.
• Your parents want to add you to their Canadian accounts: sort out gift or convenience in both countries with cross-border tax help.
• Your parents' Canadian side of a property gift: see transferring property to family.
• You are inheriting rather than receiving a gift: see inheriting from a Canadian estate as a non-resident.
• The gift includes Canadian mutual funds or ETFs: see Canadian ETFs and mutual funds after moving to the US.