Do we pay taxes on a donation received from a relative abroad?

Hello Mr Custeau,

My parents sold our apartment in Italy. Some of the money from the sale will be sent to me in Canada by international bank transfer (around 100,000 euros), as this is part of my inheritance. The other part will be used to buy a smaller apartment, still in Italy. I will be the sole owner of this apartment valued at approximately 150,000 euros. It will not be rented, but used by my parents (so it will not generate rental income).

I would like to confirm the proof of the money transfer in order to avoid paying taxes on this amount in Canada. We think to indicate “donation”. Is this the right term to avoid paying taxes in Canada? In my 2021 tax return, I will just have to declare my property abroad and there will be no taxes to pay, is that right?

Mrs O.

Hello Mrs O.,

I hope you’re doing well. Thank you for your email, it will be my pleasure to enlighten you on this subject.

A tax resident of Canada is not taxable when receiving a gift or an inheritance. You can therefore indicate that it is a donation, quite simply.

On your income tax return, you must report your foreign assets if, at any time during the year, you had more than $100,000 in assets abroad. Having funds abroad (in Canadian dollars or Euros), even for a brief moment, could trigger this disclosure on the T1135 form. Note that there is no tax payable on the simple holding of funds.

For property, it normally counts towards the calculation of the $100,000 threshold, but there is an exception if it is personal-use property. Property occupied by your parents is personal use property. You would therefore not have to consider this property in the calculation of the threshold, nor need to disclose it on the T1135 if, on the other hand, you have to complete the T1135 (this would be the case if your other assets abroad exceed the threshold).

On the other hand, when you will dispose of this property in Italy, you will have to pay taxes in Canada on the increase in value of this property (sale price – purchase cost, in simplified form).

I hope that answers your question.

Olivier Custeau, B.A.A., M. Fisc., EA

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About the author

Olivier Custeau, tax expert, B.A.A., M. Fisc., EA

Holder of a bachelor's degree in business administration (B.B.A) from Université Laval and a master's degree in taxation (M. Fisc.) from the Université de Sherbrooke, Olivier has developed expertise in American and international taxation by working in a renowned firm. Over the years, he has developed a keen interest in US taxation. In fact, he was awarded Enrolled Agent status in 2019, the highest level a professional can attain to represent clients to the Internal Revenue Service (IRS). Recognized for his rigorous, dynamic and human approach, Olivier is an asset to the team.