[Real Case] Xiaoli is an international student pursuing a master's degree in Toronto. Her parents send her 20,000 to 30,000 Canadian dollars annually from China to cover rent, tuition, and living expenses. One day, Xiaoli's bank suddenly called, saying that her account had received a remittance of over 10,000 Canadian dollars from overseas and that she needed to provide "proof of the source of funds," otherwise her account would be frozen. Xiaoli immediately panicked, thinking that the money would be taxed. She couldn't sleep that night, wondering if even money from her parents was taxed.
Common Misconceptions and Corrections
Clearly explaining "where the money came from, why it came, and whose account it went into" minimizes risk. The following points will be explained in detail:
1) The essence is "income", not a gift.
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Providing labor/services (writing code, designing, live-streaming e-commerce, etc.) to family members or their companies overseas , even if the money comes from parents, is essentially employment or self-employment income and should be declared in Canada.
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Reselling or collecting payments on behalf of family members overseas constitutes commercial income.
Key judgments: whether there is consideration, whether it is sustainable, and whether it directly corresponds to skill/time investment.
2) The source of funds is "asset disposal" or "investment income".
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Selling stocks, crypto assets, or real estate and then transferring the money to Canada is subject to global capital gains tax under the Canadian tax system (if you are a Canadian tax resident). If the disposal occurs in your name, you should report the corresponding capital gains.
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If you receive a gift of money (such as cash from your parents after selling their house), the gift itself is not taxed. However, if you invest this money and it generates interest, dividends, or capital gains, these subsequent gains are taxable. Canada does not have a gift tax , but investment income is taxable.
3) Funds deposited into the "company account" are considered business-related.
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If money is deposited into your company's bank account , the tax authorities may presume it as operating income unless you can prove that it is a shareholder investment or that the company has borrowed money from you (requiring board resolution/purpose of funds/accounts receivable/agreement).
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Conversely, money deposited into a personal account may also be related to the company (e.g., a customer mistakenly pays you personally), and the accounts should be adjusted accordingly, with evidence retained.
4) The distinction between "loan" and "gift" is unclear.
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If a loan is written as a loan but lacks a promissory note, interest rate, term, and repayment records , and is subsequently not repaid, it is highly likely to be regarded as disguised income or a point of contention .
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Interest-free loans between relatives and friends to adults are not taxed in themselves , but loans used for investment may involve attribution rules/interest deduction arrangements , requiring careful planning of the loan agreement and its intended use.
5) Gifts in employer/employee scenarios
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Gifts or bonuses from your employer are generally taxable benefits/income (non-cash gifts may be exempt under certain threshold policies, while cash/near-cash gifts are almost always taxable). This rule also applies if your "family company" is your employer.
6) Anti-money laundering investigation does not necessarily mean tax payment, but one must be able to prove their innocence.
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For cross-border wire transfers of $10,000 or more , banks/reporting entities are required to report to FINTRAC as per regulations; even if split within 24 hours , the amounts may still be combined for calculation. This is a compliance review , not equivalent to paying taxes, but it may trigger inquiries about the source of funds . You will need to prove that the funds are from legitimate sources such as gifts, loans, or investments.
7) Do not confuse this with the "Overseas Asset Declaration" of T1135.
Receiving gifts is not the same as holding "specific overseas assets". T1135 is only required to declare specific overseas assets (such as overseas stocks, overseas rental properties, overseas funds, etc.) with a cost of > $100,000 at any point in the year; cash remitted by relatives and friends overseas is usually not a "specific overseas asset" that needs to be declared under T1135.
How should this case be handled afterward?
The next day she came to find us, and I asked her to prepare three things:
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The parents signed a gift letter stating that the money was for their daughter's tuition and was a gratuitous gift.
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Bank remittance slips and transfer records ;
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Her tuition bill .
We compiled these documents together and submitted them to the bank. Three days later, the account was unfrozen, and everything was normal.
I told her, " There is no gift tax in Canada, so this money will not be taxed. The bank is simply fulfilling its anti-money laundering reporting obligation (FINTRAC) , it's not an audit by the tax authorities."
Advanced Compliance and Tax Planning Advice
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Gift money should be paid personally, while capital injection should be paid through the company : Try to avoid directly depositing "gift money" into the company account; if capital injection is necessary, the board resolution, capital injection agreement, and accounting entries must be complete.
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Turning gift money into investment : If gift money is invested in an investment account, the investment income must be reported for tax purposes annually; if it is "lent" to you by relatives or friends for investment, consider a written loan agreement and agreed interest rate , and for a more advanced approach, you can study the rules on interest rate loans and attribution .
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For large/frequent payments : It is recommended to use a fixed description template (purpose of gift money + source), file supporting documents regularly, and submit all documents at once if there are inquiries from banks or the CRA.
For cross-jurisdictional families : If the donor is a U.S. citizen/green card holder , they may have a gift tax reporting obligation in the U.S. (which is not synchronized with your tax payment in Canada). Cross-jurisdictional families need to arrange things from both sides.
