Canadian? Do You Have US Assets? You May Have US Estate Tax Exposure

If you’re a Canadian tax resident and 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. It can be a rental property, vacation home, or US business. But it can also be US securities or mutual funds held in a Canadian brokerage account or US-based brokerage account.  

Debt is also an asset like certain US debt obligations such as bonds or debentures. Any deposits being made in a US-based brokerage accounts are also an asset. Tax exposure can come from tangible US property at the time of death such as cars, boats, furniture or jewelry. Certain interests in trusts or partnerships that own US property can also be considered assets. 

What needs to be filed?

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 the value of your world-wide estate. For 2022, the US estate tax exemption is $12.06 million USD. Therefore, if the value of your world-wide estate is less than $12.06 million USD, you will likely not owe any US estate tax. But keep in mind, you are still required to file an estate tax return if your US assets are greater than $60,000 USD.  

If your assets are greater than $12.06 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 an additional marital credit This credit can eliminate or reduce the estate tax on those assets passed to the spouse. 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. 

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