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Are you affected by US estate tax?

January 23, 2015
Category :  Articles

Canadian residents who are not U.S. citizens may be subject to U.S. estate tax if they own U.S. assets.

Canadian Rules vs. U.S. Rules 

U.S. rules vary according to the taxpayer’s status. If you are a U.S. citizen or resident, your death will trigger tax on the value of all the assets in your estate at the date of death, regardless of where in the world those assets are held. If you do not have U.S. citizenship and do not reside in the U.S., but you hold assets there, not only will your estate be subject to Canadian tax on the capital gains on worldwide assets, it could also be subject to U.S. estate tax on the fair market value (FMV) of assets you hold in the U.S.


Exceptions

If the value of your U.S. assets is less than US$60,000, or your worldwide estate is valued at less than $5.43 million (amount for 2015, indexed annually), you will not be affected by estate tax.

If all the assets in your estate are left to your spouse (not your common-law partner), some exceptions may apply, depending on whether or not your spouse is a U.S. citizen. If your spouse is a U.S. citizen, no estate tax applies, regardless of the value of the estate. Otherwise, the deduction is not allowed, unless the bequest is made to a form of trust. However, the Canada-United States Income Tax Convention allows taxpayers to claim a credit, providing all the relevant conditions are met.  

Tax Rate and Targeted Assets

Depending on the value of the estate, it may be taxed at graduated rates ranging from 18% to 40% of the fair market value of U.S. assets held by the deceased at time of death. An estate containing U.S. assets valued at more than US$1 million will be taxed at the highest rate of 40%. 

For example, the following assets are subject to estate tax:

  • Real estate or personal property in the United States (e.g. a condo in Florida);
  • Stocks or stock options in U.S. companies (for instance, if you have shares in U.S. corporations within a Canadian portfolio or an RRSP, they are taxable)
  • U.S. mutual funds

U.S. life insurance policies and U.S. bank accounts are not subject to estate tax.

Certain ownership structures can reduce or eliminate exposure to U.S. estate tax. To find out more, contact your FBL representative.

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