Canadian residents who aren’t U.S. citizens may be surprised to know that U.S. estate tax can apply to them. Newly enacted U.S. tax rules have increased the exemption amount, but there are still pitfalls to be aware of.
The way U.S. estate tax works has not really changed. The tax applies to any assets that are considered to be located in the United States (such assets are called “U.S. situs assets”). This includes U.S. real estate, stocks in U.S. corporations (such as Apple, Exxon or Walmart), and personal property located in the country.
The top U.S. estate tax rate is 40% of the value of the property. This could create a sizable tax bill when any Canadian resident who owns U.S. real estate or a large U.S. stock portfolio dies: under domestic U.S. law, only US$60,000 of U.S. property is protected from estate tax. Note that RRSPs offer no protection from the U.S. estate tax. While Canadians get an increased estate tax credit thanks to the Canada-U.S. Tax Treaty, this is more complicated than meets the eye.