Capital Gains Tax on Shares Gifted to Your Child in Canada

Giving shares to a child feels like a family matter, not a sale. For tax purposes, though, the Canada Revenue Agency generally treats it as a sale, and you may owe tax on a gain you never received in cash.

This article explains the deemed sale, the attribution rules that apply when the child is under 18, what the child's cost base becomes, and the exceptions for spouses and charities. Your own facts will decide the outcome, so use this as a map for the questions to raise with an accountant.

This article covers Canadian federal tax law, which applies in every province.

A gift is treated as a sale

A gift of capital property, other than to a spouse or common-law partner, is treated as a sale at fair market value on the date of the gift. You report a capital gain or loss on that deemed disposition.

The gain is the fair market value less your adjusted cost base and any selling costs. Only half of the gain is taxable, and it is added to your other income and taxed at your marginal rates. If you hold identical shares, the average ACB is used. Report the gift in the calendar year it happens, in Canadian dollars.

What your child's cost base becomes

The recipient is generally considered to acquire gifted property at fair market value. That is the child's starting cost base. If the child later sells, the gain is measured from that value, not from your original cost.

A related rule applies to sales below market value. If you sell to a non-arm's length person, such as a relative, for less than fair market value, your proceeds are deemed to be fair market value, but the buyer's cost remains the lower price paid, so the same gain can be taxed twice. Selling to a child for a token amount is therefore not a safe workaround.

Attribution when your child is a minor

Income or loss from property transferred or lent to a person under 18 who does not deal at arm's length with you, or who is your niece or nephew, is treated as your income or loss and not the minor's. This stops at the end of the year in which the minor turns 18.

There is an important exception for gains. Attribution of capital gains under section 74.2 applies to a spouse or common-law partner, not to a minor child. A child's capital gain on gifted property is therefore not attributed back under that section, although income such as interest or dividends is attributed under section 74.1(2).

Different rules for spouses, death and charities

• Spouse or common-law partner: a gift generally occurs at ACB with no gain or loss, and you can elect out. If your spouse sells the property, the gain is generally attributed back to you.
• Death: the deceased is considered to have sold capital property, and the heir generally takes the deceased's deemed proceeds, usually fair market value just before death.
• Charity: gifts of eligible property, such as publicly traded shares, to a qualified donee can have a zero inclusion rate on the gain. Report them on Form T1170 and Schedule 3, and only a portion qualifies if you receive an advantage.

If you are thinking about giving the shares to a child who is a minor, ask whether a trust or another structure fits your goals. The answer depends on the facts.

What to do next

• Get the fair market value of the shares on the date of the gift and keep the evidence.
• Pull your ACB records, including commissions and any adjustments to units.
• Estimate the taxable gain: half of the gain, added to your income.
• Decide how dividends or interest on the shares will be handled while your child is under 18.
• Report the disposition in Part 3 of Schedule 3 for the year of the gift, and file a return even if no tax is owing.
• Speak with an accountant or lawyer before the transfer if the gain is large.

Frequently asked questions