GIFTS TO NON-CITIZEN SPOUSE – Another area to be cognizant of is the gifting rules for non-citizen spouses. Citizen spouses have an “unlimited” gifting exemption between them. For non-citizen spouses, there is a limit of $148,000 annually (adjusted for inflation) and if exceeded, you may have the hassle of filing a US gift tax return. These gifts can occur very innocently for example, when assets from one spouse’s RRSP are moved into a joint brokerage account in the US.
GIFTS TO OTHERS – The IRS also has a gift tax that many Canadians are unaware of. US residents are able to gift up to U$14,000 to any one person annually. Any gifting in excess of this amount requires taxes to be paid or a portion of your $5.45M lifetime gift exemption to be used up. The reason behind the gift tax is to prevent US residents with large estates from giving away all of their estate on their deathbed to avoid estate taxes. The gift tax often catches many Canadians by surprise because of interest-free loans they may have given to children or associates. The IRS deems this gift as a loan because there is an “imputed interest rate” at prevailing interest rates required on any amount lent. This must be realized as “phantom income” on your tax return even if no cash is received. If the interest exceeds U$14,000 annually, gift tax may be required as well.