A Tax-Smart Guide to Giving Grandchildren Gifts

You love your grandchildren and you spoil them rotten, but beyond frivolous gifts like candy and toys, you would love to give them a good financial start in life by gifting them money. It goes without saying that a cash gift is not nearly as exciting as a new bike, but your grandchildren will greatly appreciate the help down the road. You will gain the satisfaction of seeing your gift make a real difference in your loved ones’ lives. It can also bring you financial benefits, as long as you are aware of the rules. Here is what you need to know about gifting money to your grandchildren:


There is no initial gift tax in Canada, so no amount is payable after you give the gift to your child. However, if the money is gifted to a minor child and it is held in a non-registered investment account, any income generated by that gift money is attributed to you. Any capital gains are taxed to the child. No attribution applies if your grandchild is an adult.

In order to make your gift tax-effective and avoid attribution, you should contribute cash into their Registered Education Savings Plan, Tax-Free Savings Account, or Registered Retirement Savings Plan. RESPs, TFSAs, and RRSPs guarantee you won’t have to pay any tax on your gift and investments in these plans will grow and compound in a tax-deferred/tax-free environment.

Registered Education Savings Plan (RESP)

For RESPs, tax on income and growth is deferred. The tax becomes payable upon withdrawal, but it will fall into your grandchild’s hands and not yours. Make sure you plan this kind of contribution with the child’s parents so that you don’t exceed the contribution limit. Your financial advisor can help you come up with other strategies for flexibility, such as taking advantage of the maximum Canadian Education Savings Grant (CESG) with a $2,500 yearly contribution to an RESP.

Tax-Free Savings Account (TFSA)

If you want to avoid paying tax on funds that you intend to gift through your will, you can contribute that money to an adult grandchild’s TFSA tax-free. Canadians are allowed to make contributions to their TFSA after they turn 18.

Registered Retirement Savings Plan (RRSP)

Cash gifted into your grandchild’s Registered Retirement Savings Plan can grow and compound tax-deferred until they take advantage of it. The Home Buyer’s Plan allows first-time home buyers to withdraw money from their RRSP to put towards purchasing a home. The Lifelong Learning Plan allows you to take money from your RRSP to pay for full-time education. It’s also important to make sure there is enough contribution room available before giving the gift.

Contact a financial advisor at The Beacon Group of Assante Financial Management Ltd. today to help you sort out the best options for giving your loved ones the gift of financial security.