Advanced

US Estate Tax for Canadians

Canadian residents who own US-situs assets (real estate, US stocks, tangible property) may be subject to US estate tax upon death. Non-residents receive only a $60,000 exemption compared to the $13.6 million for US persons. The Canada-US Tax Treaty provides a prorated unified credit that significantly reduces exposure for most estates.

Key Points

  • US-situs assets include US real estate, US corporate stock, and tangible personal property located in the US.
  • Non-resident aliens receive only a $60,000 estate tax exemption by default.
  • The treaty provides a prorated unified credit based on the ratio of US assets to worldwide assets.
  • Canadian capital gains tax on death may generate a credit against US estate tax under the treaty.
  • Proper estate planning can minimize or eliminate US estate tax exposure.

Action Items

  1. 1.Inventory all US-situs assets and estimate their fair market value.
  2. 2.Calculate your prorated treaty credit based on the ratio of US to worldwide assets.
  3. 3.Consider holding US stocks through a Canadian corporation or trust to avoid US situs.
  4. 4.Coordinate with an estate planning attorney familiar with the Canada-US Tax Treaty.

Frequently Asked Questions

Do US-listed ETFs held in a Canadian brokerage trigger US estate tax?

Yes. US corporate stock is US-situs property regardless of where the brokerage account is held. Canadian-domiciled ETFs holding US stocks may avoid this issue.

Does the treaty fully eliminate US estate tax for Canadians?

For most estates, the prorated unified credit eliminates or greatly reduces US estate tax. However, very large estates with significant US-situs holdings may still owe tax.

Related Scenarios

Critical

TFSA US Tax Trap

The Tax-Free Savings Account is tax-exempt in Canada but receives no treaty protection in the US. The IRS classifies a TFSA as a foreign grantor trust, requiring Forms 3520 and 3520-A annually. Failure to file can result in penalties starting at $10,000 per form per year.

Critical

FBAR Filing Requirements

The Report of Foreign Bank and Financial Accounts (FBAR) must be filed by any US person with foreign financial accounts exceeding $10,000 in aggregate at any point during the year. The FBAR is filed electronically with FinCEN, not the IRS, and has its own deadline and penalty regime.

Core

Substantial Presence Test

The Substantial Presence Test (SPT) uses a weighted formula across three years to determine if a foreign national is a US tax resident. If you meet the test, you are taxed on worldwide income. Understanding the SPT is essential for snowbirds and anyone splitting time between Canada and the US.

Not sure which forms apply to you?

Answer a few questions and DualFiler will identify your tax persona, required forms, and potential penalty exposure.

Start the Wizard