Do I Pay Capital Gains Tax on Shares I Give to My Child in Canada?

Many parents want to pass shares to a child, whether to help with school, a first home or simply to share wealth early. The gift feels like it should cost nothing, but for tax purposes giving is not the same as keeping.

This article explains the deemed sale that happens when you gift shares, how the gain is worked out, and how the attribution rules treat the income your child later earns. Your facts may change the answer, so treat this as a starting point.

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, and the recipient is generally considered to acquire the property at fair market value. No money needs to change hands for the tax to apply.

The same logic applies if you sell to a relative for less than fair market value: your proceeds are considered to be the fair market value. Selling shares to your child for a token price therefore does not avoid the gain.

Working out the gain on the shares

Take the fair market value on the gift date, subtract your ACB and any outlays and expenses. Half of a gain is the taxable capital gain, and it is added to your other income and taxed at your marginal rates.

If you own identical shares bought at different times, they use an average ACB that is recalculated at each purchase. If the shares were bought in a foreign currency, the ACB is converted at the rate in effect when you acquired them and the proceeds at the rate at the time of the disposition, with everything reported in Canadian dollars.

You report the gift on Schedule 3 for the calendar year in which it happens. If the shares are worth less than your ACB, the result is a capital loss. A net capital loss can be applied only against taxable capital gains. A loss on a gift to someone related can also be affected by other rules, so ask an accountant before relying on it.

Attribution: who pays tax on the income afterwards

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 rather than the minor's. This stops at the end of the year in which the minor turns 18.

Capital gains are treated differently. Attribution of capital gains under section 74.2 applies to a spouse or common-law partner, not to a minor child, so a child's capital gain on gifted property is not attributed back under that section, although interest or dividends are attributed under section 74.1(2).

Other situations to know about

• Spouse or common-law partner: a gift or transfer of capital property to a spouse or common-law partner generally occurs at ACB with no gain or loss, and you can elect out.
• Relationship breakdown: after a breakdown, the transferor may avoid reporting the attributed gain by filing an election with their return.
• Gifts to 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 note that only a portion qualifies if you receive an advantage.
• At death: the rules differ. The deceased is considered to have sold capital property, and the heir generally gets a cost equal to the deemed proceeds, usually fair market value just before death.

What to do next

• Record the date of the gift and the fair market value of the shares on that date.
• Gather your purchase records to confirm the ACB, including any adjustments.
• Report the deemed disposition on Schedule 3 for that calendar year.
• Give your child the cost information, since they will need it later.
• Speak with an accountant or tax lawyer before gifting if the gain is large or the child is a minor.

Frequently asked questions