Giving to the grandchildren

Gift-giving season prompts Mark Goodfield (aka The Blunt Bean Counter) to look at some tax and other considerations regarding gifts to grandchildren.


If you’re planning a substantial gift for your grandchildren, Mark Goodfield has some considerations for you to ponder.

Many grandparents ask me about the tax and practical ramifications of gifting or bequeathing money or assets to grandchildren. Some wish to make gifts while they are alive, others choose to make gifts upon their passing. Still others give both while alive and after passing.

I wrote the first draft of this blog post prior to COVID -19, but it is more relevant than ever, given many people have been laid off, lost their jobs or been set back financially, and many grandparents want to help them until they regain their financial footing. Today I will discuss some of the tax and other planning considerations for grandparents wishing to make these gifts or transfers.

Tax considerations

In Canada, unlike the United States, there is currently no gift tax. (Here’s hoping this remains the case.) While there may not be a gift tax, a grandparent may need to take specific steps for effective tax planning. Remember, you should never make a gift that puts your own retirement finances at risk.

Deemed Disposition

The deemed disposition rules are one of the tax issues that apply to gifts. A grandparent will be subject to a deemed disposition tax where they gift or transfer an asset (other than cash) that has appreciated in value to a grandchild, as the CRA will tax the capital gain.

For example, Grandma Johnson is very tech savvy and purchased 100 Shopify shares at $250, which are now worth $1,200 or more a share. She decides to gift the shares to her grandson Tom. Grandma Johnson will have a deemed disposition, resulting in a capital gain of $95,000 ($1,200-250×100 shares).

In English, this means she will have to report a capital gain on her personal tax return of $95,000, even though she gifted the shares and did not sell them. If she is a high-rate taxpayer, she will owe approximately $25,000 in tax on shares she did not receive any money for. Thus, she potentially has a cash flow issue.

The folly of gifting a principal residence

Occasionally, a grandparent thinks they will save money on tax and probate by transferring or gifting their principal residence (PR), or a part of it, to their grandchildren.

In truth, a grandparent generally should not gift a principal residence, as any gain on disposition of the PR will be tax-free as long as they continue to own and live in the PR (in addition, typically, a grandparent will need most if not all the value of their home to fund their retirement). While the deemed disposition of their PR in most cases will be tax-free, the grandparent will lose their principal-residence exemption going forward on the portion of their PR that they transferred to the grandchild. Also, the grandchild will be taxable on any future growth of their share of the PR, assuming the grandparent continues to live in the home and the grandchild does not move into the house.

Appreciated assets left in a will

If a grandparent leaves appreciated assets in their will to a grandchild, the grandparent will again have a deemed disposition (this time triggered by their death as opposed to a gift) that must be reported on their terminal tax return (January 1 to date of death).

Takeaway #1—You will generally want to gift cash. If you wish to gift assets with appreciated values, ensure you have enough excess cash to pay the income tax on the deemed disposition and you do not put your own retirement lifestyle at risk. You should also speak to your financial advisor or accountant before undertaking any substantial gift.

Takeaway #2—Never transfer your home without first obtaining professional tax advice.


Where a gift of money or assets is made during a grandparent’s lifetime to a minor child (under 18 years old), the grandparent will be subject to attribution on the gift, as well as the tax on the deemed disposition (on appreciated assets other than cash) discussed above.

This means that the grandparent reports the income—dividends or interest, for example—and pays the tax at the grandparent’s marginal rate, not at the grandchild’s tax rate. For example, if you gift marketable securities that pay a dividend of $500 a year, you pay tax on the $500 dividend.

In summary, capital gains realized by a minor child are not subject to attribution, but income such as interest and dividends are subject to attribution. There is no attribution if your grandchild is 18 and over.

Attribution on assets left in a will

Where a grandparent passes away and assets are bequeathed to a grandchild, there is no future attribution of income.

Takeaway #3—If you intend to gift marketable securities to your minor grandchild, it may make sense to gift non-dividend paying stocks to avoid the attribution rules on dividends. This is not a rule, but an option to consider.

Attribution—RESPs, TFSAs and RRSPs

For children 18 years old and over, there is no attribution if you contribute to their Registered Education Savings Plan (RESP), Tax-Free Savings Account (TFSA) and Registered Retirement Savings Plan (RRSP). A minor child (under 18) cannot have a TFSA, so attribution is a moot point. However, assuming they have contribution room, a minor can have an RRSP and there is attribution on gifts for RRSP contributions. There is no attribution on RESP contributions on behalf of a minor.

Avoiding attribution—Prescribed rate loans

A grandparent can avoid the attribution rules by making a prescribed-interest rate loan (the current rate is 1 per cent) to a family trust. Prescribed rate loans are not subject to the Tax on Split Income (TOSI) rules.

Note, when I say trust above, I mean a properly set-up legal trust, not an informal “in-trust” account in the grandparent’s name. Informal in-trust accounts are not legal trusts and can cause unintended income tax and family issues and should be avoided.

Family Law

Grandparents (and parents) should always obtain family law advice for significant gifts. The laws are different for each province. In general, most gifts or inheritances are excluded property when the funds are not co-mingled or used for a matrimonial home; however, always first check with your family lawyer.

Grandparents often lend or gift grandchildren money to assist them in buying a house. There are various trips and traps when the loan is not legally documented and the interest on the loan not paid.

Takeaway #4 – Each province has its own Family Law Act and you should obtain family law advice for any significant gift or loan of cash made to a grandchild. Doing so will hopefully avoid your grandchild losing part of the value of that gift upon a marital break-up because the gift or loan was not property set up or the grandchild did not understand how to keep the property excluded.

Other possibilities for leaving something to grand-kids include using a Registered Education Savings Plan (RESP), Tax-Free Savings Account (TFSA), or Registered Retirement Savings Plan (RRSP).


RESPs are great vehicles to save for a grandchild’s education. A grandparent can contribute under his or her own plan for a grandchild, but it is very important for the grandparent to ensure they are not duplicating contributions made by the child’s parents. If both a grandparent and parent have plans for a child, they must coordinate their contributions on a yearly basis.

Takeaway #5 – If you set up an RESP for your grandchild, ensure their parents don’t already have a plan. If they do have a RESP, communicate each year with them. Ensure your estate planning considers the RESP.


TFSAs are a great tax-free option to help your grandchildren (who are 18 or over) save for education, a house, a car, vacation or even retirement (if they can look that far ahead).

Care should be taken to ensure you do not over-contribute to the TFSA, as penalties will apply.

Takeaway #6 – Gifts to fund a TFSA for a child 18 and over are tax efficient and a great way to assist them in funding their education, home purchase or retirement savings. Just be aware, they can decide to use the money for a fancy sports car or vacation and you have no say in the matter.


For grandparents making gifts to grandchildren, an RRSP is like a TFSA in that it is set up in the grandchild’s name, the grandparent has no control over the RRSP. A gift for an RRSP should be given on the understanding that the grandchild will not touch the money until their retirement. But a grandparent has no way to enforce this. RRSPs can be set up at any age, as long as the child has earned income and a social insurance number.

Takeaway #7 – Gifting money for a grandchild’s RRSP will typically be your last option (likely better to gift to RESP or TFSA).

Your will

Takeaway #8 – There are multiple trips and traps in leaving bequests to your grandchildren. It is imperative you have an experienced estate lawyer draft your will if you are leaving substantial assets to your grandchildren.

This is an edited version of an article that was originally published for subscribers in the October 2020, issue of The Taxletter. You can profit from the award-winning advice subscribers receive regularly in The Taxletter.

The TaxLetter, MPL Communications Inc.
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