Table of Gift & Loan Attribution Rules.
It turns out that not all gifts are equal and that some gifts, say a sale of valuable property at less than fair market value, can trigger double taxation, first in the hands of the donor and then, secondly in the hands of the recipient. Therefore giving a discount to a relative on valuable property may actually create tax problems for the recipient. It is better for a donor to give property at correct value and to pay any tax due on realization of gains than to have it taxed twice!
Not all property can generate capital gains. Gifts of cash or cash-equivalents such as treasury bills cannot trigger capital gains because they produce only income. Likewise, a gift of property that generates only very small capital gains may not cause a very costly problem.
If you give away a principal residence, there should be no tax bill to pay because principal residences are considered free of capital gains tax liability. Any such gift should be made very carefully, for the recipient could turn around and turf the donor out of the house.
Giving cash or property, including stocks, to a charity can provide a current tax saving. In most provinces, including Manitoba, a charitable gift can be made in a will. The donation limit that applies in the year of death for a final return is 100% of the deceased's net income. Donation credits not used up on the final return can be carried back and used in the prior year.
In other years, the limit on donation credits one can claim is a maximum of 45% of value over $200 to a limit of 75% of net income plus 25% of capital gains arising from the gift of capital property.
Income from a gift will generally be attributed back to the donor and taxed in his or her hands. There are exceptions, for a gift to a minor child will trigger attribution of income including interest, dividends, royalties and rents back to the donor. Yet capital gains are still taxed in the hands of the child. But gifts to an adult child do not trigger attribution rules.
There are serious investment implications that follow on the heels of these tax laws: