Tax-smart gifts to grandchildren

Giving a cash gift now to your grandchild brings the satisfaction of seeing your gift make a difference. It can also bring financial benefits. Here’s what you need to know.

First of all, there’s no gift tax in Canada, so no tax is payable on the gift by you or your grandchild. However, if the gift is to a minor child and held in non-registered investments, any dividend or interest income generated by the gifted money is attributed to you — capital gains are taxed in the child’s hands. No attribution applies to cash gifts to an adult grandchild.

If you want to make the gift especially tax-effective, you can give cash for a grandchild’s Registered Education Savings Plan (RESP), Tax-Free Savings Account (TFSA), or Registered Retirement Savings Plan (RRSP). There is no attribution with registered plans and your gift grows and compounds in a tax-deferred or tax-free environment.

RESPs

Tax on income and growth is deferred. When tax does become payable upon withdrawal, it will be in your grandchild’s hands. A note of caution: You need to plan this with the child’s parents in order to ensure that there is no over-contribution.

TFSAs

Funds subject to tax that you’d normally gift through your will can be given to grandchildren 18 and over tax-free for TFSAs.

RRSPs

Your cash gift to your adult grandchild’s RRSP can grow and compound tax-deferred. Note, your grandchild must have contribution room available.

Talk to an Assante advisor about these strategies for tax-effective gifts to your grandchildren.