Canada taxes gifts as part of its capital gains tax system. Whenever a person makes a gift (except a qualifying gift to a spouse), the person is deemed to have sold the gifted property and to have received fair market value sale proceeds. If the property has increased in value since acquisition, the deemed fiar market value sale gives rise to a capital gain that will be subject to about a 22% rate of tax. As this is a capital gains tax, the tax applies only to the increase in value (not the entire value of the property).
If a US resident dies owning Canadian real estate, that also triggers a deemed fair market value sale of the Canadian real estate for Canadian income tax purposes. Unless the deceased has made a qualifying gift of the real estate to a surviving spouse, the death will trigger Canadian tax on any increase in value.
Subject to limits set out in the Canada-US Tax Treaty, Canadian capital gains tax triggered by a gift or on death can be credited against US gift and estate tax. If the gift will trigger Canadian capital gains tax, it may be better to gift US property under the US gift tax exemption so that Canadian capital gains tax on Canadian real estate is triggered in the same year that US gift or estate tax is triggered on the Canadian real esate. If the US and Canadian taxes are triggered in the same year, the Canadian tax may be able to be used as a credit against the US tax. This will not be the case if the Canadian tax is triggered on a transaction that is exempt from US gift tax.