Personal Finance

Getting a loan from family aboard - Tax Question

  • Last Updated:
  • Jul 29th, 2020 10:25 am
[OP]
Member
User avatar
Dec 30, 2006
369 posts
160 upvotes
Toronto

Getting a loan from family aboard - Tax Question

If I'm getting a loan from a family/relative (Same last name as me) oversea ~100K USD to purchase a property or investment, is this loan taxable? How would I prove this is a legit loan and not an income?

Additionally, because this is from a family and they are not in a rush for repayment. Possible to declare this as a gift instead of a loan?
Last edited by fakejordan on Jul 27th, 2020 11:05 pm, edited 1 time in total.
13 replies
Member
Mar 6, 2015
212 posts
450 upvotes
There is no gift tax in Canada ....... yet.

Ideally, try to get a notarized letter from the family explaining the source of the funds and any terms that may go along with it. There is nothing to declare in regards to the capital. However, any interest or capital gains earned on the capital needs to be declared.
Deal Addict
Jan 1, 2017
1810 posts
1831 upvotes
fakejordan wrote: If I'm getting a loan from a family/relative (Same last name as me) oversea ~100K USD to purchase a property or investment, is this loan taxable? How would I prove this is a legit loan and not an income?

Additionally, because this is from a family and they are not in a rush for repayment. Possible to declare this as a gift instead of a loan?
What do you mean by a loan being taxable? You don’t pay tax on obtaining a loan.
[OP]
Member
User avatar
Dec 30, 2006
369 posts
160 upvotes
Toronto
ProductGuy wrote: What do you mean by a loan being taxable? You don’t pay tax on obtaining a loan.
Is not a loan from a Bank or Financial Institution. All of the sudden if there is 100k USD being wired into my account. Would it trigger red flags with CRA or the bank? What paper work would I need to prepare to receive such funds from family/relative.
Deal Fanatic
Apr 5, 2016
5938 posts
4381 upvotes
Calgary/Vancouver
fakejordan wrote: Is not a loan from a Bank or Financial Institution. All of the sudden if there is 100k USD being wired into my account. Would it trigger red flags with CRA or the bank? What paper work would I need to prepare to receive such funds from family/relative.

It may trigger red flags. If that's the case, get a letter draft up by the person wiring the funds to you stating that its funds being loaned or gifted to you. If you're using it for purchase of real estate, you will also need a gift letter stating who gave you these funds. Best way to avoid that is to leave your funds in your bank account for at least 3 months.
Deal Addict
Nov 13, 2013
3798 posts
2355 upvotes
Ottawa
bomber17 wrote: It may trigger red flags. If that's the case, get a letter draft up by the person wiring the funds to you stating that its funds being loaned or gifted to you. If you're using it for purchase of real estate, you will also need a gift letter stating who gave you these funds. Best way to avoid that is to leave your funds in your bank account for at least 3 months.
It probably won't. You only need this letter if you are getting a mortgage. Otherwise nobody will ask.
Deal Fanatic
Apr 5, 2016
5938 posts
4381 upvotes
Calgary/Vancouver
fogetmylogin wrote: It probably won't. You only need this letter if you are getting a mortgage. Otherwise nobody will ask.
Depends if they get flagged by AML. Large transfers are being monitored during these times as fraud is through the roof.
Deal Addict
Sep 6, 2017
4485 posts
2968 upvotes
Best to ask your accountant instead of random people on rfd?
Deal Addict
Jul 21, 2005
2026 posts
1075 upvotes
Alberta
Don't worry about it. If it's legit and you have proof, just receive it. I had >$200k wired a while back for same purpose from Japan, no issues. We have a written contract between us, just a basic piece of paper I wrote up, just to be sure, no lawyer or anything
Deal Addict
User avatar
Jan 2, 2012
4402 posts
2575 upvotes
Toronto
fakejordan wrote: If I'm getting a loan from a family/relative (Same last name as me) oversea ~100K USD to purchase a property or investment, is this loan taxable? How would I prove this is a legit loan and not an income?

Additionally, because this is from a family and they are not in a rush for repayment. Possible to declare this as a gift instead of a loan?
Timing and details are important. If the loan is received within around 3 months of applying for a mortgage, the mortgage lender will demand details on where the money is coming from. If it's a loan you need to pay back, then trying to declare it as a gift would be fraud. Also many lenders only allow gifts from immediate family members (parent, grandparent, child, sibling) accompanied by a gift letter, and will not allow gifts from any other family. If mortgage lender treats the money as a loan, they will add it to your overall debt ratio so it will affect your total mortgage borrowing maximum.

If the money is received more than 3 months in advance of mortgage app, then mortgage lender probably won't ask any questions about it as it would be assumed to be part of your own savings.
[OP]
Member
User avatar
Dec 30, 2006
369 posts
160 upvotes
Toronto
Reaching out to fellow rfd'er again. Is there a template I can use to state the money I am getting is a gift from a family member? Both of us will sign the documents.
Deal Fanatic
Apr 5, 2016
5938 posts
4381 upvotes
Calgary/Vancouver
fakejordan wrote: Reaching out to fellow rfd'er again. Is there a template I can use to state the money I am getting is a gift from a family member? Both of us will sign the documents.
Wait for the bank to flag it first, cause if they don't, you don't need to do it. If they do, they have a template for you to fill out.
Deal Addict
User avatar
Jan 2, 2012
4402 posts
2575 upvotes
Toronto
fakejordan wrote: Reaching out to fellow rfd'er again. Is there a template I can use to state the money I am getting is a gift from a family member? Both of us will sign the documents.
Who is the family member? As I stated above, most lenders will require any gifts only come from immediate family so that means parent, grandparent, child or sibling only. "Gifts" from other family like cousins, uncles, aunts, etc may be treated as loans regardless if they have a gift letter or not.

If a lender does their underwriting properly they should ask you for 3 months of statements from chequing, savings, investment, etc accounts. Any newer funds being used for downpayment should be questioned.

I don't know how diligently all lenders adhere to this, so as mentioned wait until they flag it and ask for it, then you can deal with it. Just take note if money is not from an immediate family member and used within 3 months, the amount may be added to your debts and affect your total mortgage amount.
Deal Fanatic
Jan 21, 2018
7547 posts
8123 upvotes
Vancouver
There is no tax on loans, whether from family members or anyone else, whether from Canada or another country.

In theory all transactions over $10K are reported for possible additional scrutiny, but the volume of $100K+ overseas transactions for Canadians is overwhelming, and few legit transactions will ever attract any additional scrutiny. And if it does, there's nothing to worry about, just give them the information they ask for.

Some banks are especially picky and will take it on the themselves to ask questions. For example HSBC - they got slapped on the wrist by the banking regulator for careless oversight of foreign transactions a few years ago, and now they make a great show of being especially vigilant. My retired mother transferred a few $100K from HSBC to RBC to take advantage of a short-term interest rate promo, and then back a few months later. HSBC's head office in Toronto called and grilled her about where the money came from! She's a Premier client who has hand the HSBC account for 30 years, receiving only pension income for 20 years. Apparently they have no history, and consider transfers between personal accounts at major Canadian banks potentially suspicious. Or they're making a pointless show of improved security. :rolleyes:

Top

Thread Information

There is currently 1 user viewing this thread. (0 members and 1 guest)