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Get a key or a gift link and send it to your friend. Or you send him a digital gift card. But yeah, sending just money is of course the least original way to make someone a present.
Gift links come pretty close to gifting it directly through steam. When your friends clicks the link, the gift dialog opens up. The only problem is that he can't decline that lol. Well he can, but you don't get the money back, nor can you send the link to somebody else. It's a bit wonky.
Obviously those alternative methods come with some flaws, so it would be great if steam supported cross region gifting one day.
If the price difference between the 2 regions is more than 10% after currency conversion, you can not gift it. The original regional restrictions still apply, if the game has them.
If that is the case, send one of these using external funds only...
https://store.steampowered.com/digitalgiftcards/selectgiftcard
For custom amounts over the minimum allowed to purchase, use this guide...
https://www.howtogeek.com/331114/how-to-send-a-steam-digital-gift-card-in-any-amount/
For price references, use this site... https://steamdb.info/
Or just use https://isthereanydeal.com/
Does the gift link system work through steam, or a third party key re-seller? Ideally I'd like to use my steam wallet balance.
It won't, you can already send your friend the money to buy the game. Too many legal issues which is why it was changed such as taxes and abuse.
Also keep in mind that not every game on the Store has the same pricing structure. Some publishers may price their games close enough between Canada and the US so that you can gift them. If the games don't have anything else to restrict them from crossing a border, it all comes down to that 10% threshold between prices.
Not always the case. Some games can be gifted one way but not the other.
I know, I know, it would be easier through Steam yadda yadda. But realistically you have two options.
You can buy a key, it works, you get to gift the game to your friend.
OR
You can complain on Steam forums and have nothing happen, because it hasn't happened in the past 19 years and they're not going to change their store policies because of a forum thread. Your friend doesn't get the game.
Your choice.
The rules/restrictions changed in 2016.
Steam has started blocking gifting when steam wallet is used for payment.
People have reported they could gift one or two times with steam wallet, and after that it would no longer work.
After contacting steam they have received answers, that their account has been flagged for commercial use and to use credit cards if they want to gift games in the future.
None of which has anything remotely to do with the OP's issue.....
He says he wants to pay with Steam wallet in post #3, so how do we know that it's not the cause of OP's problem?