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Updated on August 17, 2023
Do you own U.S. property or shares? Even if you’re not a U.S. citizen, your estate may be subject to tax.
You may be subject to U.S. estate tax if the market value of the U.S. property owned is greater than US$60,000. Your estate will then have to file an estate tax return in the nine months following the date of death, even if no tax is payable.
Property most often subject to estate tax includes land and buildings, U.S. securities (shares, bonds, ETF, etc.), tangible property located permanently in the U.S. (vehicles, boats, works of art, etc.), safety deposit box contents but not the funds in a personal U.S. bank account.
So, if you own shares in, for example, Google, Apple or Coca-Cola, you could be subject to estate taxes, even if those shares are held in a Canadian brokerage account, including a Registered Retirement Savings Plan (RRSP) or Tax-Free Savings Account (TFSA).
Estate taxes are calculated on the market value of the property using progressive rates ranging from 18% to 40%.
Calculating your tax credit
However, under the Canada-United States tax treaty, you are entitled to a credit in calculating the estate taxes. The credit is based on the proportion of property in the U.S. at the time of death to worldwide property.
As a result of this credit, generally, no estate tax is payable if the value of the worldwide estate is below the applicable exemption threshold, which is US$12.06M in 2022.
Your estate may also qualify for a marital credit if the U.S. assets are bequeathed to the person to whom you are legally married. Note that the Canadian capital gains tax can be reduced by deducting U.S. estate taxes.
Filing a declaration of inheritance rights
In all cases, your estate will have to file a declaration of inheritance rights in the nine months following the date of death, even if no tax is payable. It is very important to file this declaration as it will be used to determine the relief provided by the tax agreement, which is designed to reduce or eliminate double taxation of inheritances.
Planning your estate
Legislation provides that in 2026, the estate tax exemption threshold will revert to the 2017 level of $5.49M. This exemption is a highly politicized issue and in our firm, we consider it more prudent to plan on the basis of a US$5.49M exemption.
In fact, it is essential to properly plan for what will happen at the time of your death, particularly in order to pay as little estate tax as possible and facilitate the transfer of ownership to your heirs.
How you hold your assets is especially important. There are a number of strategies to avoid U.S. estate tax, such as transferring the property to a Canadian personal trust or corporation and dividing the ownership of an asset.
It is recommended that you seek advice from an international tax specialist.