[Fall 2024 GPS] U.S. Estate Tax on Canadian Estates

Canadian residents are assumed to have disposed of their capital property for income tax purposes when they die, with some exceptions. The proceeds of a disposition are the property's fair market value unless it is given to a spouse or spousal trust upon death. After a person dies, a final tax return must be prepared based on the income they earned up to the date of death. Any monies owing to CRA are paid out from the estate assets before the remaining funds are distributed to the various beneficiaries.

Owning U.S. property or investments can complicate estate administration. A Canadian citizen who owns U.S. real property or US stocks (including those held in a brokerage account in Canada) may also have a significant U.S. estate tax liability at the time of death.

For U.S. estate taxes, there is a "Unified Credit" that exempts a portion of the deceased’s estate from U.S. estate taxes based on an exemption amount. In 2017, the exemption amount was raised from USD 5m to USD 10m and linked to inflation annually. Thus, the 2024 exemption amount is $13,610,000. Unless action is taken, this increase will expire on December 31, 2025, and revert to USD 5m, adjusted for inflation.

The value of the taxable U.S. estate is taxed at a graduated rate, starting at 18% on the first $10,000 up to 40% on all amounts exceeding $1,000,000 beyond the exemption amount. The Canada–U.S. tax treaty grants Canadians a basic unified credit exemption like the one available to U.S. citizens and residents. However, the exemption is adjusted according to the proportion of U.S. situs assets' value relative to the total value of their worldwide estate.

Canadians employed by international companies are often granted U.S. stock options and RSUs. As these employees near retirement, their U.S. stock portfolio can easily exceed USD $10m. Many estate specialists recommend planning once an individual has more than USD $60,000 in U.S. situs assets, as compliance requirements begin at this threshold. If the value of your US situs assets is greater than USD $60,000 upon death, your estate must file a US estate tax return, even if no tax is payable. If you think this situation could apply to you, let us know and we will investigate further or connect you with tax professionals who can help.