Giving money as a gift? Here are the who, how and tax considerations

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Thinking of giving financial gifts for the holidays?

They might be an option, particularly if passing along wealth to the next generation is something you’ve been considering.

But there are many things to think about when giving a financial gift, including the emotions that can go along with it, says Carolyn Cole, founder of Cole and Associates, a consulting practice focused on family office strategy and design.

“Before one gives a financial gift, there is often an unspoken expectation or image in the giver’s mind about what each recipient will or should do with the funds,” says Cole, adding that in many cases the giver fails to mention these intentions to the recipient, leaving them in a tough situation.

“Without clarity, the relationship between the giver and recipient can be damaged and the recipient is set up for failure.”

It’s fine to give a gift with “strings attached,” says Cole, but make sure those conditions are expressed prior to giving the gift to make sure everyone is on the same page. There are many great reasons to give a financial gift, from teaching investment management and philanthropy to budgets and financial responsibility, but making sure you communicate your intent is important because money can be emotional.

“It is not about the amount, but rather asking yourself why you want to give this money away and what is your core intention,” says Cole.

When to give financial gifts

Is there an optimal stage of life to receive this gift? Is it when someone buys a house, gets married, has a child?

It all comes back to intent, explains Cole.

“If you are gifting to help the recipient’s financial literacy, then younger is better,” she says. “If the gift is intended to stabilize a family’s financial circumstances, then timing may be different.”

In order to set the recipient up for success, it may be wise to consider bringing in professionals to help with money management.

Giving the gift of financial coaching and education may also be an attractive gift for both the gifter and the receiver, explains Karlee Vukets, a certified financial planner who specializes in  financial coaching for single women and wealth inheritors.

“It’s such a beautiful gift [because] … there are so many emotions around gifting and receiving money, so it’s important to be able to ask questions and gain knowledge about where the money is coming from,” says Vukets.

It’s about helping the recipient navigate the complexity of receiving a gift of wealth, explains Vukets. “Just because people have high-net worth, doesn’t mean they don’t have emotional stuff around their finances.”

Tax consequences

And then there is the question of taxes: What are the income tax implications or limits of gifting money?

Surprisingly the answer is none, explains Jamie Golombek, managing director, tax and estate planning, at CIBC Private Wealth and author of a 2022 report on financial gifting, Give a little bit, adding that it is one of the biggest tax misconceptions out there.

In fact, almost one in 10 (9 per cent) of people surveyed for CIBC’s 2017 Gifting Poll incorrectly believed that recipients pay income tax on some or all of the gifts they receive. But, in actuality, the recipient will pay no income tax in Canada on your gift, explains Golombek.

“In the case of gifting to adult children, as long as you’re not doing it for the purposes of income splitting… and not looking to get money back, then you’re fine, you can give as much as a gift as you want,” he adds. “It’s not reportable anywhere.”

But keep in mind that significant cash receipts may need to be reported to government authorities, like if the recipient of your gift deposits cash totalling $10,000 or more to a Canadian bank in one day, the bank would need to report this.

In the Gifting Poll, 76 per cent of Canadian parents of an adult child say they would give their child a financial boost to help them move out, marry or live with a partner, with nearly half of them (47 per cent) giving monetary gifts of $24,000 on average.

But there are some things to consider when gifting cash. “Keep in mind that, with a gift, it’s very hard to get it back,” says Golombek. In other words, don’t give money away that you may need in future.

More from Canadian Family Offices

• Wealth and loneliness can go hand-in-hand during the holidays
• Four top concerns of wealthy Canadian families at year end
• ‘Friending’ clients: Unprofessional, or a way to deepen ties and boost confidence?
• ‘Wealth 3.0’ and what’s next in advising: A chat with Jim Grubman

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