If you are a Canadian tax resident and you own US assets, you may have exposure to US estate tax upon death. You may ask what is a US asset and the easy response would be US real estate, whether it be a rental property or vacation home and US business assets but it also includes US securities or mutual funds whether held in a Canadian brokerage account or US-based brokerage account, certain US debt obligations such as bonds or debentures, deposits in a US-based brokerage accounts, tangible property situated in the US at time or death such as cars, boats, furniture or jewelry and certain interests in trusts or partnerships that own US property.
A US Federal estate tax return is required to be filed by a non-resident of the US if your US assets exceed $60,000 USD at the time of death. The resulting US estate tax may be eliminated or reduced dependent on your value of your world-wide estate at the time of death. For 2019, the US estate tax exemption is $11.4 million USD which means if the value of your world-wide estate is less than $11.4 million USD, you will not likely owe any US estate tax but keep in mind, you are still required to file an estate tax return if your US assets were greater than $60,000 USD at the time of death. If your world-wide assets are greater than $11.4 million USD at the time of death, you may owe US estate tax after claiming a prorated estate tax exemption under the Canada/US income tax treaty which will be based on the ratio of your US assets to your world-wide assets. The US Federal estate tax rates range from 18% – 40% of the taxable estate.
If your US property passes to a Canadian resident spouse, you may be eligible to claim and additional marital credit to eliminate or reduce the estate tax on those assets passed to the spouse. If you are claiming the marital credit, you will need to file a US estate tax return to claim the credits provided under the Canada/US income tax treaty.
As the Federal estate tax rules have had significant changes over the years, it is always a good idea to review the status of the exemption amounts from year to year.
Some US states may also impose estate tax and you should ensure you address any state estate tax exposure in addition to the US Federal estate tax exposure.
To learn more, contact your Rise Advisor.