Tax Insights – Estate tax update: US estate tax exposure for Canadians

Issue 2014-05

Canadian residents (who are not US citizens) may be subject to US estate tax if they die owning certain US assets, such as shares of US corporations, US real estate and US business assets.

Under the Canada-US Tax Treaty (the Treaty), Canadian residents will now have a US estate tax liability only if their worldwide assets are valued at more than $5.34 million.

This Tax Insights sets out the potential exposure of Canadians to US estate tax. All amounts are in US dollars.

If the value of your worldwide assets exceeds $5.34 million, you will be required to pay US estate tax based on the value of your US assets. The tax rate starts at 18% and can reach as high as 40% for US assets exceeding $1,000,000.

Fortunately, Canada’s tax treaty with the United States allows you to reduce your estate tax liability by claiming a tax credit (referred to as the unified credit) equal to the greater of:

  • $13,000
  • $2,081,800 x the value of your US assets ÷ your worldwide assets

For example, if your US stock portfolio accounts for 10% of the value of your worldwide estate, you will be entitled to a unified credit of $208,180 ($2,081,800 x 10%).

For example, David, a Canadian resident (who is not a US citizen), owns a US stock portfolio worth $1 million. His entire estate is valued at $10 million.

As shown in the table, if David dies in 2014, his estate can claim a unified credit equal to $208,180 (10% of $2,081,800), reducing the estate tax liability to $137,620.