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Can i give my children money when entering a long term care facility and at what point do they pay taxes? |
Can i give my children money when entering a long term care facility and at what point do they pay taxes? gift giving laws are different in Canada than the US you need to see an accountant General anti-avoidance rules (GAAR) The Act contains a broad set of rules to prevent abusive transactions that avoid taxes. These rules, collectively known as General Anti-Avoidance Rules (GAAR), seek to deny the tax benefit that results from avoidance transactions. While the intent is to prevent tax avoidance, it is important that the rules do not also interfere with legitimate transactions. In this regard, GAAR distinguishes between legitimate tax planning and abusive tax avoidance. An 鈥渁voidance鈥?transaction is basically any transaction (or set of transactions) that results in a tax benefit, unless the transaction can be considered to have a legitimate purpose other than to obtain a tax benefit. Tax avoidance occurs where taxpayers arrange their affairs in an artificial way to avoid taxes. For example, a person may give income producing property to a spouse for no other reason than to reduce his or her tax liability. Another example is a person taking advantage of a tax loophole for no business reason other than to reduce his or her tax liability. GAAR would seek to deny any tax benefit realized with these types of transactions. Income Attribution Rules and the Concept of Non-Arm鈥檚 Length Transactions Because of their nature, non-arm鈥檚 length transactions require special rules for income tax purposes. A non-arm鈥檚 length transaction is any transaction consummated between two or more related parties. Related individuals include direct-line descendants (grandparents, parents, children, and so on), as well as spouses, brothers, sisters, and inlaws. Attribution Rules: The second set of tax rules for non-arm鈥檚 length transactions, known as the 鈥渁ttribution rules鈥? deem income earned by one individual to belong to a related person. In general, income or loss earned on property that was transferred between spouses or between a parent and child is deemed earned by the original owner of the property, unless fair value consideration is received on the transfer. This rule prevents a taxpayer from transferring income to spouse or child, who may be in a lower tax bracket. Source(s): CMA Canada - July 2004 I think you should address this question to the tax professional in your own country and make sure it's not going to affect you in anyway. For example, in US, if you give your money away to relatives before or while you are applying for any kind of government monetary assistance, you will be disqualified. Also tax codes are different from country to country. Anything 11,000 or lower given in one calendar year as a gift is taxfree. (See example #3 below) The gift tax applies to the transfer by gift of any property. You make a gift if you give property (including money), or the use of or income from property, without expecting to receive something of at least equal value in return. If you sell something at less than its full value or if you make an interest-free or reduced interest loan, you may be making a gift. The general rule is that any gift is a taxable gift. However, there are many exceptions to this rule. Generally, the following gifts are not taxable gifts: Gifts that are not more than the annual exclusion for the calendar year, Tuition or medical expenses you pay directly to a medical or educational institution for someone, Gifts to your spouse, Gifts to a political organization for its use, and Gifts to charities. Annual exclusion. A separate annual exclusion applies to each person to whom you make a gift. For 2004, the annual exclusion is $11,000. Therefore, you generally can give up to $11,000 each to any number of people in 2004 and none of the gifts will be taxable. If you are married, both you and your spouse can separately give up to $11,000 to the same person in 2004 without making a taxable gift. If one of you gives more than $11,000 to a person in 2004, see Gift Splitting, later. Inflation adjustment. After 2004, the $11,000 annual exclusion may be increased due to a cost-of-living adjustment. See the instructions for Form 709 for the amount of the annual exclusion for the year you make the gift. Example 1. In 2004, you give your niece a cash gift of $8,000. It is your only gift to her this year. The gift is not a taxable gift because it is not more than the $11,000 annual exclusion. Example 2. You pay the $15,000 college tuition of your friend. Because the payment qualifies for the educational exclusion, the gift is not a taxable gift. Example 3. In 2004, you give $25,000 to your 25-year-old daughter. The first $11,000 of your gift is not subject to the gift tax because of the annual exclusion. The remaining $14,000 is a taxable gift. As explained later under Applying the Unified Credit to Gift Tax, you may not have to pay the gift tax on the remaining $14,000. However, you do have to file a gift tax return. More information. See Form 709 and its instructions for more information about taxable gifts. Internal Revenue Website, http://www.irs.gov/publications/p950/ar0... |
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