Gift Tax Exemption

mtnman · Post by **mtnman** » Thu Nov 15, 2012 5:29 pm

I am a U.S citizen residing in Canada. With the gift tax exemption amount of $5.1 mil set to expire I wish to gift as much as I can to my non-U.S citizen spouse.

I own 76% share of a Cdn corporation, my spouse owns the rest. I want to gift her my 76%. Basis in the stock is $1, fmv is much higher. At what amount, ie cost basis or fmv do I use to be added to the exemption amount ?

Thanks in advance for your comments.

nelsona · Post by **nelsona** » Thu Nov 15, 2012 6:15 pm

For US gift tax purposes, the FMV is used to determine the value of the gift.

Her future capital gains tax will be based on the $1 cost basis.

Be careful, since for US purposes SHE will have to pay the cap gains tax (if she becomes a US taxpayer), but for Cdn purposes YOU will have to pay the cap gains, which could lead to mismatch of foreign tax credits.

JGCA · Post by **JGCA** » Thu Nov 15, 2012 6:22 pm

If your spuse is a non USC you can not claim the marital exemption of up to $ 5M your gift tax exemption is limited up to $ 136K only plus the other tax owed. You will be subject to gift tax over this amount with no marital exemption.

nelsona · Post by **nelsona** » Thu Nov 15, 2012 7:59 pm

JG, I'm not so sure of this. From what I've read, the gift exemption applies to any gifts. US citizen spuses do not need the 5.1M gift exemption because the are fully unlimited.

I'll find some references if you wish; you do the same, please. It does seem ambiguous.

mtnman · Post by **mtnman** » Thu Nov 15, 2012 8:03 pm

Wow...I do need clarification. ...the difference between a $5m and $136k exemption is huge !

Thanks guys

nelsona · Post by **nelsona** » Thu Nov 15, 2012 8:05 pm

Gift tax on the amount in excess of the $136K could be avoided by using whatever of one's lifetime Unified credit is left, which would be the 5 milion we are talikng about.

The advantage a US spouse has is thjat the gifts to her can be unlimited, without touching the Unified credit.

JGCA · Post by **JGCA** » Thu Nov 15, 2012 8:18 pm

But he said his spouse is not a USC so he is limited to 136K.

nelsona · Post by **nelsona** » Thu Nov 15, 2012 11:26 pm

Reread what I said. Regardless of the personal limit, the unified credit is available regardless of who the gift is given to. So, for 2012, the credit is 5.1 million.

ine would have to report the gift over 136k, but not be txed on it, assuming they still have UC left.

nelsona · Post by **nelsona** » Thu Nov 15, 2012 11:31 pm

http://geygan.net/general-estate-planni ... ould-know/

"Resident Aliens benefit from the same unified gift and estate tax credit as citizens, but the unlimited marital deduction is not available unless the surviving spouse is a United States citizen."

mtnman · Post by **mtnman** » Thu Nov 15, 2012 11:45 pm

Back to basics...since these are shares of a Cdn private corporation are they exempt from US gift tax? I believe they are exempt from estate tax so it only makes sense they are exempt from gift tax.

mtnman · Post by **mtnman** » Fri Nov 16, 2012 12:54 am

Ignore above comments......I was reading rules for non-resident aliens. with Us si situs proprty .Since I am a Us citizen. I am t axed. On. Worldwide assets...not just Us situs. Assets.

nelsona · Post by **nelsona** » Fri Nov 16, 2012 6:34 am

So, this year you can gift $5.1M plus $136K to your wife without any gift taxv-- assuming you have not used any of your unified credit in the past.

nelsona · Post by **nelsona** » Fri Nov 16, 2012 6:40 am

YG what do you think? Am I too getting therules fpr Resident aliens and non-resident aliens confused?

JGCA · Post by **JGCA** » Fri Nov 16, 2012 10:28 am

The issue or resident vs non resident is with respect to the fact that the spouse has to be resident in addition to being a USC, therefore since his spouse is not a USC the limit applies it would not matter if she eevn was a resident alien she in not a USC and he can not get the marital exemption.

For CND purposes he gifts or sells his shrs to her he is deemed to have received FMW he may avail himself of the super capital gains exemption up to $ 750K against his capital gain. For US purposes if he uses any of his gift tax exemption then his spouse will take over his cost basis the only way to increase her cost basis if if he pays gift tax then this basis is carried over to the spouse if he takes a gift tax exemption then his old cost basis does not carry over to her.

mtnman · Post by **mtnman** » Fri Nov 16, 2012 11:30 am

So let me make sure that I have this correct:

1 the shares I transfer have to be transferred at. Fmv
2 I pay US capital gains tax on those shares
3 I claim my Unified tax credit to offset the gift tax on the transfer
4 for Canadian tax purposes these shares are qualified shares which I can claim to capital gains exemption on
5 for US tax purposes my wife receipes the shares at ACB......which should not matter because she is not a US taxpayer
6 FOR CANADIAN TAX PURPOSES SHE RECEIVES THE SHARES AT FAIR MARKET VALUE

CORRECT???

THANKS FOR ALL THE HELP