In the U.S., gifts between spouses, who are both U.S. citizens, are non-taxable. However, when one of the spouses is a non-resident alien, the tax rules can vary and the situation can become complex.
As the U.S. gift tax rules can be confusing, the tax professionals at AG Tax have prepared a general overview of the federal gift tax law applicable in the case of transfers to non-U.S. citizen spouses.
What is Gift Tax?
As discussed in one of our earlier articles (Gifts and the Gift Tax Return), the gift tax is a tax levied on the value of the gift made by an individual to a person other than their spouse (beyond the IRS annual threshold limit).
Gift tax rules for gifting to non-resident spouses
• As per the standard gift tax rule above, if a U.S. citizen or resident spouse makes a gift to his/her spouse, who is also a U.S. citizen or resident, the gift is not subject to any taxes or threshold limits due to the unlimited marital deduction.
• If a U.S. citizen or resident spouse makes a gift to his/her non-resident alien spouse, the unlimited marital deduction is not available and the donor will be required to file a gift tax return if the value of the gift is more than the authorized annual threshold limit. For 2013, a U.S. spouse can give their Canadian spouse gifts up to $143,000 without being subject to gift tax.
– To qualify for the annual exclusion, a gift must be of a present interest. A present interest is the immediate right to possession, use and enjoyment of the property. The annual exclusion does not apply if these rights begin at some time in the future.
Gift tax rules for gifting from non-resident spouses
• In the case of gifts received by a U.S. citizen or resident from their non-resident alien spouse, the following gift tax rules apply:
– Gifts of tangible property not located in the United States are not subject to U.S. taxation, other than the reporting requirements. If a Canadian spouse makes a gift of a property located in Canada to their U.S. citizen spouse, it is not subject to U.S. taxes, but may need to be reported.
– U.S. gift tax is applicable only if the non-resident alien spouse gifts real or tangible personal property situated in the U.S. to his/her spouse.
– Gifts of intangible property, such as stock in a U.S. corporation, by a nonresident alien are generally not taxable.
– The U.S. citizen recipient may be required to report the gift on Form 3520 if the gift exceeds $100,000.
Tax concerns of gifting to and from non-resident spouses
One of the main concerns is the possibility of double taxation, since the tax rules vary in every country and the gift could be subject to taxes in the non-resident donor’s own country as well.
The U.S. currently has tax treaties that relate to gift and estate taxes with 17 countries, which may provide some relief from double taxation.
It is always advisable to consult a tax professional regarding tax filing requirements, in order to avoid any future tax issues with the Internal Revenue Service (IRS) or Canada Revenue Agency (CRA).
AG Tax LLP Can Help
If you have any tax-related queries, need assistance with tax planning or filing your tax returns please contact us. Our team comprises of highly experienced tax professionals with extensive knowledge of U.S. and Canadian tax laws as well as cross-border compliance
Furthermore, as a full service accounting firm, AG Tax assures complete assistance with even your most complex tax needs.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- State Sales Tax & E-commerce Taxation
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
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