In an almost cruel fashion, just as the season of giving comes to an end, the season of taxation begins.
Staying on top of your taxes is obviously important to everyone, but especially to those who are running their own business. However, with so many rules and regulations, it can be difficult at the best of times.
One tricky aspect of taxation that Canadian small business owners may face is cross-border gift tax, thanks to differing regulations between Canada and the United States.
If you’re finding yourself confused, don’t worry! This post is here to help you out and answer any questions you may have about cross-border gift tax – including changes that have been made to regulations for 2019.
What Is Cross-Border Gift Tax?
The Canada Revenue Agency (CRA) and the Internal Revenue Service (IRS) have different approaches to the taxation of gifts.
US cross-border gift tax generally applies to a non-US person donor (the one who provides the gift), when they make a gift involving real property or tangible property situated in the United States.
Apart from gifts from employers, there is no gift tax imposed on Canadians. However, in the U.S., there is a gift tax, which is imposed on the donor.
In the U.S., gift tax is levied at rates that range from 18% to 40% – the 40% rate only applying when the total gifts made over the lifetime exceeds one million dollars.
Who Does U.S. Cross-Border Gift Tax Apply To?
U.S. cross-border gift tax applies to:
- U.S. citizens and green-card holders living in Canada, regardless of where the gifted property is located
- All Canadians who gift real and tangible property located in the U.S.
Are There Exemptions To U.S Cross-Border Gift Tax?
There are annual exclusions and lifetime exemptions, but Canadians only have access to the annual exclusions.
The following annual exclusions apply to U.S. citizens and residents AND to Canadians gifting U.S. situs property:
- As of 2019, donors can exclude the first US $15,000 of annual gifts per donee (receiver) with no limit on the total number of recipients.
For example, both members of a couple with three kids could give $15,000 to each of their three children with no tax impact.
- As of 2019, unlimited gifts can be also be made to a U.S. citizen spouse with no tax impact.
Gifts made to a non-U.S. citizen spouse qualify for a special exclusion of $155,000.
- Gifts that exceed either the $15,000 or $155,000 annual thresholds are taxable and must be reported on a gift tax return (IRS Form 709).
To qualify for these exclusions, the gifts must be of a “present interest,” which means that the donee has the immediate right to use and enjoy the property received.
What Happens When Canadian’s Gift Above These Thresholds?
Canadians who gift above the aforementioned thresholds must file a U.S. gift tax return and pay any gift tax owing. This is where things can get very tricky, and lead you to fall into a possible tax trap.
For Canadians who have U.S. gift tax exposure on U.S. assets, a double tax problem occurs because of the imposition of U.S. gift tax and Canadian capital gains tax in the same year.
To avoid this situation, any Canadian thinking about moving to the U.S. should consider making any gifts they might have made in the future before they exit Canada.
Doing so allows you to simplify your future financial affairs by setting up a structure ahead of time to provide ongoing support to family and friends without having to deal with the complicated U.S. tax system.
If this is scenario is not feasible for you, advance cross-border tax planning and advice from tax professionals is recommended to help you eliminate as many U.S. gift tax issues as possible.
What Is The Best Way To Send Money From Canada To The United States?
Transferring money online with your bank or through bank wire transfers sacrifices huge portions of your money in wire transfer fees. These transfers can also take around 5 working days to arrive into they payee’s account.
Some people will opt to send their money using online transfer companies like Transferwise. However, to send the equivalent of CAD $10,000 to the U.S. with Transferwise, you pay around $60 in fees! (As per Transferwise website, 02/19/2019).
Thankfully, REMITR is here to save you both time and money. Our service eliminates high fees and guarantees savings, charging a flat fee as low as $5!
REMITR allows users to send and receive money 24/7 to 150 countries worldwide. We offer users the best live exchange rate, no matter what the currency.
If you need to send money, but also want to save money, get in touch with REMITR today.