Korean Job Discussion Forums

seoultopper · Joined: 14 Aug 2011 Location: Seoul

Hi:

I'm a long-term Canadian expat in Korea and I want to send money to either my father or my sister (enough for them to put a down payment on a condo that they would purchase under their own name as I cannot as a non-resident of Canada). I was wondering if anybody knows if the recipient of the money transfers would be taxed? I had heard in the past that if you sent under a certain amount at a time it would not raise any red flags with the government.

Thanks in advance for any information/advice that you may be able to provide.

Cheers,

Ed

ttompatz · Joined: 05 Sep 2005 Location: Kwangju, South Korea

If they are going it to use as a down payment on a condo then it is a "loan" and is not taxable.

It might have also been the interest free repayment of an old (and perhaps unrecorded) debt for a previous loan from family (also not taxable).

.

Wad · Joined: 19 Nov 2007

Why do you think you can't buy real estate? There may be some tax implications when selling it, but there should be no restrictions buying. Canada welcomes home buyers from all countries and there are no restrictions on the amount or kind of real estate you can buy. The only hurdle I can see may be financing, as non-residents are usually required to have a 35% down payment.

seoultopper · Joined: 14 Aug 2011 Location: Seoul

Wad · Joined: 19 Nov 2007

talentedcrayon · Joined: 27 Aug 2013 Location: Why do you even care?

Hello OP,

FYI Your loan cannot be interest free. You must charge at least the CRA prescribed rate of interest. The CRA has information on whatever that amount it will be. It is currently 3%. http://news.gc.ca/web/article-en.do?&nid=948739

If you do not charge interest it is possible that it will be considered some kind of revenue/income to the receiver. They will be forced to pay taxes on it.

Don't listen to the others. You must charge interest for it to be considered a loan.

EDIT: Here is a link to an article explaining this: http://www.advisor.ca/tax/estate-planning/income-splitting-assets-prescribed-rates-and-personal-loans-2754

- former accountant

talentedcrayon · Joined: 27 Aug 2013 Location: Why do you even care?

OP

Charging interest will mean that you are earning income in Canada and will have to pay taxes on it. More importantly this can interfere will your claim of non-residency for tax purposes.

A better idea might be to buy the house along with them and get your name on the title. That way it isn't a loan, you can claim it is an investment.

However, you are correct in stating that owning property in Canada can also take away your status as a non-resident for tax purposes.

I recommend talking to an accountant about this prior to making any decision especially if it is a lot of money we are talking about.

My personal recommendation is not to do it.

Wad · Joined: 19 Nov 2007

ttompatz · Joined: 05 Sep 2005 Location: Kwangju, South Korea

Wad · Joined: 19 Nov 2007

Are gifts or inheritances taxable?

There is no "gift tax" in Canada. Any resident of Canada who receives a gift or inheritance of any amount from almost source (except from an employer) will not have to include this in their income. However, if capital property (real estate, other than a principal residence, or investments) is given as a gift, the person who has given the gift will be deemed to have sold the capital property at fair market value, and will have to pay tax on any resulting capital gain. The fair market value is deemed to be the "cost" to the person to whom the shares were given. If money or capital property is given or loaned to a spouse or a related minor child, attribution rules will apply.

http://www.taxtips.ca/personaltax/giftsandinheritances.htm

So the OP would have no problem giving the money as a "gift" to his father or sister. Taxes will only accrue when they transfer title over to him in the future if in fact there is a capital gain.

talentedcrayon · Joined: 27 Aug 2013 Location: Why do you even care?

OP,

Talk to an accountant before making any decision. You don't have to listen to what I say. I am just some random guy online... I could be making it all up.

But:

Income earned in Canada is taxable in Canada NOT Korea (IE charging interest).

The CRA is very aggressive in determining residency. The only reason they dont usually care about ESL teachers is that, frankly, you guys don't have enough money to make it worth their while. That being said... if you are planning on sending 50k... that amount might be worth their while.

Good luck telling the CRA 50,000 was a gift...

Again, talk to an accountant.

Wad · Joined: 19 Nov 2007

I'm curious as to why being determined a resident in Canada would be a disadvantage? South Korea has treaties with Canada to allow credit for any taxes withheld in the other country to avoid double taxation. Twenty years ago when these treaties didn't exist there was the problem, but today?

If you can prove the income was earned legitimately (e.g. proof of taxes paid...Canadian banks usually ask for tax receipts for transferred amounts over $10,000 CDN) why would the government be entitled to tax you again on money you send as a gift to a family member other than a spouse or a related minor child (attribution rules) ?

schwa · Joined: 18 Jan 2003 Location: Yap

If you're deemed resident of Canada for tax purposes, then your Korean income is subject to Canadian tax rates, which are substantially higher than in Korea. You can subtract the tax you pay to Korea (ie not be double-taxed) but CRA will want the difference.

Stan Rogers · Joined: 20 Aug 2010

Wad · Joined: 19 Nov 2007

Understood on the residence issue. I found out the answer after I asked...but thanks.

However I can't seem to find anywhere that says you can't give money as a gift tax free /interest free to a family member (other than a spouse or related minor child).

Many of my colleagues have been doing the exact same thing over the years, sending money to parents to invest in real estate (parent's title), without any tax repercussions.