Is Gifting a Capital Property a Disposition?

In Canada, gifting a capital property is considered a disposition for tax purposes. When you gift a capital property to someone, it is treated as if you have sold the property at its fair market value (FMV) at the time of the gift. This means that you may be subject to capital gains tax on any accrued gains in the property's value up to the date of the gift, even though you didn't receive any cash in return.

Here are some important points to consider when gifting a capital property in Canada:

1. Capital Gains Tax: If the fair market value of the property has increased since you acquired it, you will generally be subject to capital gains tax on the difference between the FMV at the time of the gift and your original cost (adjusted for any eligible expenses). This tax is usually 50% of the capital gain.
2. Unused Capital Losses: If you have capital losses from other investments, you may be able to use them to offset the capital gain from the gifted property, reducing or eliminating the capital gains tax liability.
3. Gifts to Spouse or Common-Law Partner: If you gift a capital property to your spouse or common-law partner, certain rollover provisions may apply, allowing you to defer the capital gains tax until the property is eventually sold by your spouse or common-law partner.
4. Gifts to Charities: If you gift a capital property to a registered charity, you may be eligible for a charitable donation tax credit based on the property's FMV. This credit can help offset other taxes you owe.
5. Documentation and Valuation: It's crucial to properly document the gift and establish the FMV of the property at the time of the gift. A qualified appraiser may be needed to determine the property's value, especially for complex or unique assets.
6. Reporting: You must report the gift of a capital property on your income tax return for the year in which the gift occurred, even if no money changed hands.

It's important to consult with our office when gifting a capital property to ensure that you understand the tax implications and can plan accordingly. Tax rules can be complex, and there may be specific strategies or deductions available in your situation that can help minimize the tax impact of the gift. Additionally, tax laws are subject to change, so staying informed about the latest regulations is essential.