Tax Insights – Estate tax update: Canadians transferred to the US

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Issue 2014-10

A Canadian individual who is transferred to the United States may be exposed to US estate, gift or generation-skipping transfer tax (collectively, transfer taxes). The exposure depends on whether the individual is regarded for transfer tax purposes as a US resident or a non-resident alien. Criteria for determining residency for US transfer taxes differ from those for determining residency for US income taxes.

Key aspects of transfer taxes are discussed below and summarized in Table 1 on page 3. All dollar amounts are in US currency.

An individual will be considered a US resident for transfer tax purposes if he or she is domiciled in the United States. A person acquires domicile in the United States by both:

  • being physically present in the United States, however briefly, and
  • forming the intent to reside in the United States permanently

Domicile is a subjective test because it depends on an individual’s intent to remain in the United States. Courts and commentators have developed some objective criteria to help determine whether the intent necessary to establish domicile is present. These criteria include:

  • duration of stay in the United States and frequency of travel outside of the United States
  • size, nature and location of residence in the United States, compared to non-US residences
  • location of family and friends, and of social and business ties
  • declaration of residency in legal documents such as wills, trusts and deeds
  • location of personal possessions, business interests, voter registration, automobile and driver’s licence registration, bank and brokerage accounts, and club and religious memberships, and
  • US immigration status.