Canadian gfting $1m to US citizen child

[unclescrooge]

I have a friend who lives in the US and is a citizen.

Her mother lives in Canada and is a Canadian citizen.

They have a joint account with $1m sitting in Wells Fargo and earning $1400 a year.

The money came from a US trust in her mother's name that was dissolved and the after-tax proceeds went into their joint account.

They aren't doing anything with the money because the mother is worried about filing form T1135 in Canada, which is just a basic informational form.

They are also concerned about gifting the sum to the daughter as they think the mother will be subject to 40% gift tax.

The mother has not renounced her US citizenship and is a dual citizen.

They have done absolutely nothing with this money for 3 years out of fear of onerous tax reporting and taxation.

Is the form T1135 really that complex?
What is an easy way to gift the money to my friend to avoid gift tax?

Thanks in advance!

[typical.investor]

Is the form T1135 really that complex?

I'd assume the amount that could be gained with proper investment would make it worthwhile to figure it out. It doesn't look complicated.

What is an easy way to gift the money to my friend to avoid gift tax?

The mother gives your friend the money and files a Form 709. The tax rate is 0% if she is under the $12.06 million lifetime exception. It gets a little complicated if she has filed one before. She would need that information to file another. So definitely keep the information in a safe place if she files now and in case she were to need to again. The reason is the amount is always changing so you have to calculate how much was given before and how much was allowed and ... see the instructions if that is the case.

Alternatively, the mother could give up to the $14,000 yearly gift limit to have no impact on her $12.06 million lifetime exception.

That’s US side anyway.

Wells Fargo rates are abysmal. You are giving them good advice to figure this out to do to better.

[livesoft]

I have a friend who lives in the US and is a citizen.
What is an easy way to gift the money to my friend to avoid gift tax?

Thanks in advance!

Have mother renounce Canadian citizenship. There is no gift tax when giving a million dollars to someone.

Wells Fargo has a brokerage that is superb, so one could invest in a money market fund paying more than 5% while deciding what to do.

[typical.investor]

I have a friend who lives in the US and is a citizen.
What is an easy way to gift the money to my friend to avoid gift tax?

Thanks in advance!

Have mother renounce Canadian citizenship. There is no gift tax when giving a million dollars to someone.

Wells Fargo has a brokerage that is superb, so one could invest in a money market fund paying more than 5% while deciding what to do.

My understanding is that gifts are tax-free in Canada if they are given in the form of cash or money. Why would renouncing Canadian citizenship be required and how would it help?

See for example https://smartwills.ca/gift-tax-free/#:~ ... tax%2Dfree.

[Katietsu]

I know basically nothing about Form T1135. But it seems that just the current ownership of the account could trigger a filing requirement. I thought there was what is essentially a bogleheads forum for Canadians. I hope your post gets to the right people who can give solid advice.

[unclescrooge]

I have a friend who lives in the US and is a citizen.
What is an easy way to gift the money to my friend to avoid gift tax?

Thanks in advance!

Have mother renounce Canadian citizenship. There is no gift tax when giving a million dollars to someone.

Wells Fargo has a brokerage that is superb, so one could invest in a money market fund paying more than 5% while deciding what to do.

Mother is a Canadian resident. She is more likey to renounce US citizenship!

But I believe Canada doesn't have inheritance or gift taxes so she likely doesn't have to do this.

[unclescrooge]

I know basically nothing about Form T1135. But it seems that just the current ownership of the account could trigger a filing requirement. I thought there was what is essentially a bogleheads forum for Canadians. I hope your post gets to the right people who can give solid advice.

I believe it's financial wisdom, but when dealing with cross country issues it always gets complicated.

[Dottie57]

So what kinds of tax would Canada Levy?

[JohnFiscal]

I believe it's financial wisdom, but when dealing with cross country issues it always gets complicated.

Yes, Canadian "Bogleheads" is Financial Wisdom Forum at https://www.financialwisdomforum.org/forum/index.php. There are a number of people members in both forums.

[bsteiner]

The mother might want to make the gift in trust rather than outright to keep it out of the daughter’s estate and protect it against the daughter’s creditors and spouses, and Medicaid.

[JohnFiscal]

Is the form T1135 really that complex?

No, Form T1135 is pretty trivial. It's analogous to the US Treasury FBAR form and IRS Form 8938. All of these simply report the existence of foreign assets, there is no tax based on the form information.

See https://www.canada.ca/en/revenue-agency ... t1135.html. Much of the description of the form refers to "Income" but you must also report any foreign holdings even if not income.

(the form https://www.canada.ca/content/dam/cra-a ... 35-22e.pdf)

sign me: US Citizen now a Permanent Resident in Canada and have gone through 2 years of tax forms in both countries

[unclescrooge]

Is the form T1135 really that complex?

No, Form T1135 is pretty trivial. It's analogous to the US Treasury FBAR form and IRS Form 8938. All of these simply report the existence of foreign assets, there is no tax based on the form information.

See https://www.canada.ca/en/revenue-agency ... t1135.html. Much of the description of the form refers to "Income" but you must also report any foreign holdings even if not income.

(the form https://www.canada.ca/content/dam/cra-a ... 35-22e.pdf)

sign me: US Citizen now a Permanent Resident in Canada and have gone through 2 years of tax forms in both countries

Thanks for confirming. I went through both docs and I thought it was straightforward too. OTOH, my friend thought it was complex, and her mother is so distraught over the complexity the money has been sitting in cash for 3 years.
Also an accountant told them it can get complex and cost a few thousand dollars to file. Same accountant told them if the mom gifts the cash to the daughter, she will need to pay 40% in taxes.
They are nowhere near the $12m estate tax limits nor are they likely to get there in the mom's life.

[LaniK1]

If either or both are US citizens, aren't they required to report the interest income, however small, in their taxes?

[JohnFiscal]

If either or both are US citizens, aren't they required to report the interest income, however small, in their taxes?

This is true. Regardless of residence or residency (eg: I am a US citizen with residence in Canada. I have to file US tax returns and indicate "world wide" income...of whatever type.

[vandefrosty]

The complication for T1135, in this case, will be that CRA will levy a penalty for every year that the form was not filed when it should have been. That is a maximum of CAD 2500 per year ($25 per day for 100 days max), plus arrears interest from the filing deadline each year. There seem to be more onerous penalties that apply if the form is filed more than 24 months late.

The form isn't particularly difficult to fill, if the data is available. For the cash amount at Wells Fargo, that's probably not complicated.

The form is required for foreign-held assets with a cost base higher than CAD 100k. So it seems that obligation has already been triggered, and penalties will be inevitable. The CRA offers various Voluntary Disclosure and Taxpayer Relief programmes that may reduce any penalty amounts, but these are generally not available in cases of intentional non-compliance.

I have no experience on the gifting aspects of this thread.

Greg

[unclescrooge]

If either or both are US citizens, aren't they required to report the interest income, however small, in their taxes?

This is true. Regardless of residence or residency (eg: I am a US citizen with residence in Canada. I have to file US tax returns and indicate "world wide" income...of whatever type.

Yes, you do need to file. I think because their taxes are already complex, they are scared of adding more complexity.

[unclescrooge]

The mother might want to make the gift in trust rather than outright to keep it out of the daughter’s estate and protect it against the daughter’s creditors and spouses, and Medicaid.

Could please expand on this idea or point to a resource?

[bsteiner]

The mother might want to make the gift in trust rather than outright to keep it out of the daughter’s estate and protect it against the daughter’s creditors and spouses, and Medicaid.

Could please expand on this idea or point to a resource?

If you give or leave money to someone outright, it's in the recipient's estate for estate tax purposes, and it's subject to the recipient's creditors and spouses. If you give or leave money to someone in trust, it isn't. For $1 million it's usually worth the effort to get the asset protection.