Note: reference to dollars is in U.S. currency and state gift tax will not be addressed
The December 2017 Tax Cuts and Jobs Act doubled the lifetime gift tax/estate tax exclusion to $11.18M effective for 2018 to 2025, subject to inflation adjustments for subsequent years.
As an update, for 2025, the annual exemption to a non- spouse is $19K and was not changed for 2026 by the Big & Beautiful Bill that passed in July 2025. The lifetime exemption is $13.99M for 2025 and $15M for 2026 due to the passing of the Big & Beautiful Bill.
The U.S. federal gift and estate tax rules are an integrated system for U.S. citizens and those domiciled in the United States.
Gifts made by Canadian donors of a present interest in U.S. situs tangible property (real and personal) such as one’ s vacation property situated in Florida is subject to the gift tax based on the above tax rates. In most cases, gifts made by Canadians of intangible property such as shares of a U.S. corporation are not subject to gift tax except where the U.S. expatriation rules may apply. If you gave up U.S. citizenship or your green card as being classified a long-term resident (“LTR”) of the U.S., you need to review these rules. Exemptions available to Canadians are significantly lower than what is available to a U.S. citizen or a U.S. domicile.
The Canada\U.S. tax treaty does not provide relief for federal/state gift tax.
Taxable gifts made during one’s lifetime are subject to the same graduated tax rates as estate tax. The 2026, $15M (2025-$13.99M) lifetime gift tax exclusion/estate tax exclusion is available to U.S. citizens, U.S. domiciliaries and green card holders with U.S. domicile. Post 1976 taxable gifts are included in the gross estate and credit is given for gift tax previously paid.
Based on the rates noted above (which have generally been annually increased), the first $19,000 (for 2025-2026) of gifts of a present interest annually made by a donor to each donee, are not included as taxable gifts. If the gift is above the annual exclusion, then one has to compute the gift tax (using the estate/gift tax rate table), however as the unified credit is for both the incidence of estate and gift tax, the present $13.99M (2025) lifetime exclusion may apply. The maximum estate marginal rate is 40% (that is in accordance with The American Taxpayer Relief Act of January 1, 2013).
Although for U.S. purposes, this lifetime exclusion say to gift significant amounts is very attractive, for U.S. citizens that reside in Canada, the gifting of appreciable assets will create immediate taxation here, generally, if the transfer is generally not to their spouse. One should review this situation before any transfer is contemplated if the U.S. citizen is not residing in the United States, to avoid potential tax exposure in their country of residence. The Tax Treaty should be examined for any relief.
The determination of the effective tax on taxable gifts made in the current year depends on the taxable gifts made in prior years which could result in a higher effective tax rate on current years’ taxable gifts.
With certain exceptions, an unlimited dollar amount of gifts may be made between spouses who are U.S. citizens. With restrictions, an unlimited dollar amount of gifts for a donee’s medical and tuition expenses is also available. Gifts to minors in accordance with IRS Code 2503(c) are included in the computation of the annual gift exclusion. A gift tax charitable deduction is also available for gifts to charity.
For 2025, annual gifts of $190,000 made by a U.S. citizen to his/her non-U.S. citizen spouse are not taxable. For 2026, the limit will be $194,000. This area requires review where spouses are separated, and U.S. real property may be transferred to one spouse as a result of settlement. Where the recipient spouse is not a U.S. person, the U.S. non-recognition rule pertaining to the gain will not apply which means, the unrealized capital gain is reportable and taxable on the transferor U.S spouse’s 1040 return. It is possible that some of the settlement still may be a gift if fair market value is not paid to the transferor spouse so careful planning is necessary as the Canadian rules for a spousal transfer needs to be examined as well to ensure there is no double taxation. IRS Form 8288-B for a withholding certificate to reduce the FIRPTA withholding will be beneficial where the effective tax on the capital gain is less than the 10%/15% withholding on the gross sale or transfer price.
Canadians are not eligible to utilize the lifetime gift tax exclusion available to U.S. citizens, U.S. domiciliaries and green card holders.
Care should be taken in making non-taxable gifts of appreciated property to spouses and minors as the property transfer and attribution rules in the Canadian Income Tax Act may be costly.
Generally speaking, the donee obtains a basis in gifted property equivalent to the adjusted basis to the donor plus an adjustment for gift tax paid on gift on gifts made after 1976. It appears that where there the recipient spouse is not a U.S. person, they would get step-up in basis as the transferor had to recognize the gain on the transfer due it not being a non-recognition transaction.
The due date for IRS Form 709 is April 15th, of the year after the gift was made.
You are not required to file Form 709 if (i) you made no gifts during the year to your spouse; (ii) you did not give more than $15,000 (2018) to any one donee, and (iii) all the gifts you made were of present interests. One should review the instructions to the 709 to ensure their filing policy has not changed for a particular taxation year.
Contact your professional advisor prior to implementing any of the outlined strategies.
Pursuant to Internal Revenue Service Circular 230, we hereby inform you that the advice or information set forth herein with respect to U.S. federal tax issues was not intended or written to be used, and cannot be used, by you or any taxpayer, for the purpose of avoiding any penalties that may be imposed on you or any other person under the Internal Revenue Code.
