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Don’t just give this holiday season – share.

More specifically, give shares of stock in a publicly traded company. It’s an opportunity for parents to help their children build wealth of their own as well as become better managers of family finances down the road.

Yet this act of generosity can be more complex than people realize, at least from a tax perspective, says Fabio Campanella, a chartered professional accountant and investment advisor with Praetorian Wealth Advisory in Toronto and Oakville, Ont.

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There is no “gift tax" in Canada, he points out, unlike in the United States, where givers of significant gifts can be subject to a tax rate of as much as 40 per cent. But givers in Canada face "a deemed disposition of the shares at fair market value, which could trigger a capital gain when you transfer the ownership of the shares,” Mr. Campanella says.

Givers of stock face "a deemed disposition of the shares at fair market value, which could trigger a capital gain when you transfer the ownership of the shares,” says Fabio Campanella, a chartered professional accountant and investment advisor with Praetorian Wealth Advisory in Toronto and Oakville, Ont.

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If you plan to transfer ownership of shares to a child, he or she must be age 18 (or 19 in some provinces and territories). The moment the transfer occurs, it’s as if you have sold them, and you will have to pay taxes on any gain in capital value while you owned the stock.

From there on, however, your child can reap the benefits of future growth of the shares’ value and any dividends they pay.

An alternative strategy would be to transfer stocks that are in a loss position. That way, Mr. Campanella adds, you can claim the loss against any realized capital gains you may have for the current year, or going back three years. Or the loss can be carried forward indefinitely until you have a taxable capital gain.

Cynthia Kett, a certified financial planner and CPA, says “giving” shares to children who are not adults by law is tricky. “Children under the age of majority can’t hold shares in their own name because they lack legal capacity to [enter into a] contract,” says Ms. Kett, a trust and estate practitioner with Stewart & Kett Financial Advisors Inc. in Toronto.

One way to get around this is by setting up an in-trust account, sometimes referred to as an informal trust. But parents are still required to pay taxes on interest and dividends generated by the original investment, though capital gains inside the account are taxable to the beneficiary, or child.

A better idea may be to allow minor children to “play” the stock market with pretend money before receiving the real deal once they reach the age of majority. Some companies offer “virtual” shares or portfolios online, Ms. Kett says. “The learning experience would still be of value, even though actual shareholdings aren’t at stake.”

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Parents giving shares to adult children face other considerations besides taxes. If the child is in a rocky relationship, for example, parents might want to rethink the idea of giving shares, Mr. Campanella says.

The risk is the “adult child may intermingle the shares or proceeds from the sale of shares into what is known from a family law perspective as ‘net family property,’ which could be lost in a divorce,” he says.

Say, for example, you give $100,000 of public company shares to your adult child, who turns around and sells the shares, deposits the money into a joint account with a spouse, and eventually uses the proceeds for a down payment on a family home.

“This money is now at risk of being included in net family property even though a gift can be excluded from family property,” he says. That’s why he recommends parents considering a significant gift to their married children, or those living in a common-law relationship, seek legal advice from a family law specialist.

Another, simpler approach is to give children cash to invest; the gift results in no tax consequences for the parent. Of course, the money is not guaranteed to be invested, and a marital breakdown could imperil it.

Another tactic is to set up a formal trust, though it is a complex alternative. “Trust accounts would only be appropriate if the amount to be gifted was significant enough … because there may be associated administration fees,” Ms. Kett says. A formal trust is usually warranted only for amounts of $250,000 or more, she says.

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The benefit of a formal trust is the parent can still maintain some control over the asset while the child benefits from income from it and its growth.

Dawn Loeffler, an accountant in Langley, B.C, suggests the best way to foster a sense of financial responsibility in children and other gift recipients is to encourage them to save their earnings from allowances, cash gifts from the holidays and employment.

“If you can sit with kids and walk them through the first stock transaction, that will educate them for life so they have familiarity with it … along with the risks, the highs and lows,” says Ms. Loeffler, manager of Gilmour Group Chartered Professional Accountants Inc.

She also argues that giving stock, while it might prove beneficial, is less likely to have as an impact as lasting as helping them do it on their own.

“If it’s their money, they’ll probably be more savvy with it,” she says. “If it’s stock gifted to them, I’m not sure they will have that same level of care.”

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