4- U.S. estate taxes

U.S. residents and citizens are subject to U.S. estate taxes on the total value of the property they own at the time of death. Estate taxes are levied on the market value of the property of deceased taxpayers who are not citizens or residents of the United States provided they own property located there at the time of death worth more than US$60,000.

Properties most often subject to these taxes are:

• Land and buildings located in the U.S. as well as the furniture therein;
• Shares of U.S. corporations;
• Jewellery, vehicles, boats and other tangible property in the U.S. permanently;
• Bank deposits in the U.S. if the amounts are related to a business carried on in that country;
• Safety deposit boxes located in the United States;
• Certain interests in a partnership or trust owning property in the U.S.

In 2024, estate taxes are calculated in accordance with a table of progressive rates ranging from 18% (on a taxable value of less than US$10,000) to 40% (on amounts exceeding US$1,000,000).

Canadian residents are entitled to a tax credit calculated on the proportion of U.S. properties of the deceased individual at the time of death to the total value of worldwide properties. This US$5,389,800 credit in 2024 is equal to a US$13,610,000 exemption. Consequently, a Canadian whose world estate is valued at less than US$13,610,000 will often not have to pay U.S. federal estate taxes.

Example: In 2024, a Canadian taxpayer dies. The taxpayer owned a residence (mortgage free) in Florida with a FMV of US$2,000,000 and other property in Canada worth US$14,000,000. His/her estate would have to pay American estate tax of US$106,575 calculated as follows: basic tax of US$745,800 less a credit of US$673,725 (US$2,000,000 ÷ US$16,000,000 × US$5,389,800).

Under certain circumstances, an additional credit may be available. The marital credit is the most common example, i.e., if the property is transmitted to a surviving spouse who is an American resident.

Some states also impose estate tax. The tax legislation in the states where any property is located should be consulted.

Some tax planning options are available to reduce the impact of U.S. estate tax.

Under Canada’s tax laws, the death of a Canadian taxpayer triggers a deemed disposition of all his/her property, which may result in a taxable capital gain (see Section XI). As a full foreign tax credit (see section VII) for U.S. estate taxes might not be allowed against the Canadian income taxes, a taxpayer may be subject to double taxation when he/she dies.