I am a US resident and own a vacation home in Canada. I was thinking of gifting the vacation home to my children to use up the US gift tax exemption that is available up to the end of 2012. Does Canada impose a gift tax on gifts of Canadian real estate?
Tax Professional Answers
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.
Meet Leading Tax Advisors
Federal Tax Credits & Incentives Practice Leader
New York, NY
CEO/Certified Financial Advisor
Rancho Santa Fe, CA
San Jose, CA
Long Beach/ Park City, CA