Gifts Across the Border: The US Gift Tax, Canada's Deemed Disposition, and the Form 3520 Threshold

Canada and the United States regulate gifts through different taxes. Canada has no gift tax; it treats a gift of appreciated property as a sale at fair market value and taxes the giver's capital gain. The US has a gift tax on the giver, with an annual exclusion per recipient and a large lifetime exemption, and taxes the gift's value rather than its gain. When the giver and recipient are on different sides of the border, both systems can apply to the same transfer, and the US adds a reporting requirement on the recipient of large gifts from foreign persons.

Full guides: Canadian Parents Gifting Money to US Children: No Gift Tax Anywhere — One Form for the Kids, One Trap for the Parents · US Parents Gifting to Canadian Children: the Gift Tax Belongs to the Giver — Annual Exclusions, Form 709, and the Canadian Side's Silence

Key takeaways

• Canada: no gift tax. A gift of capital property (stocks, real estate, a cottage) is a deemed disposition at fair market value, and the giver reports the capital gain. Gifts of cash have no tax consequence. Attribution rules can tax income on gifted property back to the giver when the recipient is a spouse or minor child.
• US: the gift tax applies to US citizens and residents on gifts of any property worldwide, and to non-residents on gifts of US-situs tangible property and real estate. The annual exclusion is $19,000 per recipient (2025 and 2026); gifts above it use the lifetime exemption ($15 million from 2026) and require a Form 709. Gifts to a non-citizen spouse are limited to an annual amount (about $190,000) rather than the unlimited marital deduction.
• Recipient reporting: a US person who receives more than $100,000 in a year in gifts or bequests from a non-resident alien individual or foreign estate must report it on Form 3520. There is no tax, but the penalty for not filing is 5% per month of the gift's value, up to 25%.
• Basis: the US recipient of a gift takes the giver's basis (carryover); Canada gives the recipient fair market value as the cost base because the giver was deemed to sell.

Canadian giver, US recipient

A Canadian resident who gives appreciated shares to a US-resident child reports a capital gain in Canada as if the shares were sold at fair market value. No Canadian gift tax. The US recipient owes no US tax on receipt, files Form 3520 if the gifts from that giver (and related persons) exceed $100,000 in the year, and takes a carryover basis for US purposes equal to the giver's basis (not the fair market value Canada used), which means the pre-gift appreciation Canada already taxed can be taxed again in the US on sale.

A Canadian giver who is not a US person owes no US gift tax on gifts of cash, stocks, or intangibles; US gift tax applies to a non-resident giver only on US-situs tangible property (a car in Florida, cash physically in the US) and US real estate. A Canadian who gifts a Florida condo to a child owes US gift tax on its value above the annual exclusion, with no lifetime exemption available to non-residents beyond the exclusion.

US giver, Canadian recipient

A US citizen or resident who gives property to a Canadian-resident child files Form 709 for gifts above the annual exclusion and uses lifetime exemption; no tax is due until the exemption is exhausted. The US giver does not recognize gain. The Canadian recipient owes no Canadian tax on receipt and takes the property at fair market value as the Canadian cost base (the CRA treats the acquisition at FMV). Income on gifted property can be attributed back to the giver under Canadian rules only if the giver is a Canadian resident, so a US-resident giver escapes attribution.

A US citizen living in Canada who makes gifts is subject to the US gift tax rules on worldwide gifts and to Canada's deemed disposition on appreciated property; both apply.

Spouses

Canada allows a tax-deferred rollover of property between spouses (the recipient takes the giver's cost base) but attributes income and gains on the gifted property back to the giver. The US allows an unlimited marital deduction for gifts to a US-citizen spouse but caps gifts to a non-citizen spouse at an annual amount; a US citizen married to a Canadian who is not a US citizen must file Form 709 for gifts above that amount.

Form 3520

The recipient-side form catches Canadians who have become US persons and receive family money from Canada: a parent's help with a house down payment, an inheritance, a gift of shares. The threshold is $100,000 aggregate from a non-resident alien individual or estate (and $19,570 from foreign corporations or partnerships, indexed) in a calendar year. The form is due with the recipient's 1040. The penalty for non-filing is severe and automatic, though the IRS revised its penalty practice in late 2024 to review reasonable cause before assessing.

Worked example

A Toronto mother gives her Miami-resident daughter $150,000 in cash and 1,000 shares of a Canadian bank (ACB $40,000, FMV $95,000) in one year.

• Canada. Cash: no consequence. Shares: deemed disposition at $95,000; $55,000 capital gain; $27,500 taxable; roughly $14,700 of Ontario tax.
• US giver. Not a US person; no US gift tax on cash or Canadian shares.
• US recipient. Total gifts $245,000 from a non-resident alien; Form 3520 required. No US tax. US basis in the shares: carryover $40,000 (converted), so the daughter faces US tax on the $55,000 of appreciation Canada already taxed when she eventually sells.
• Alternative. The mother sells the shares, pays the same Canadian tax, and gifts cash; the daughter's basis problem disappears.

Official sources

"Annual exclusion per donee: 2025 — $19,000; 2026 — $19,000." — Internal Revenue Service, Frequently Asked Questions on Gift Taxes, https://www.irs.gov/businesses/small-businesses-self-employed/frequently-asked-questions-on-gift-taxes

"U.S. persons and executors of estates of U.S. decedents file Form 3520 to report: Certain transactions with foreign trusts. Ownership of foreign trusts under the rules of sections Internal Revenue Code 671 through 679. Receipt of certain large gifts or bequests from certain foreign persons." — Internal Revenue Service, About Form 3520, https://www.irs.gov/forms-pubs/about-form-3520

"If you donate capital property, you are considered to have disposed of that property for proceeds equal to the FMV of the property. You have to report any capital gain on your income tax and benefit return in the year you donated the property." — Canada Revenue Agency, Gifts and Income Tax (P113), https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/p113/p113-gifts-income-tax.html

Practitioner note

The Form 3520 penalty is the most disproportionate in cross-border practice: a $200,000 gift from a Canadian parent to a child in Florida, unreported, can draw a $50,000 penalty on a transfer that owed no tax. Every US-person client with Canadian family gets the $100,000 rule explained in the first meeting. And on appreciated property, cash almost always beats shares: it avoids the carryover-basis double taxation.

See also: Planning a full move? Start with the Canada-to-US tax checklist and browse every corridor by city, province, and state.

Next step

Fairlight prepares the gift planning analysis, the Canadian return reporting the deemed disposition, and the Form 709 and Form 3520 filings on the US side. See cross-border pricing or book a call.