The U.S. Estate Tax May Affect You
As a Canadian citizen, you may not think that the U.S. estate tax applies to you. However, Canadians who hold what is termed as “U.S. situs property” may be subject to this tax. This includes U.S. real estate, such as the condos that many snowbirds escape to during the winter season, and shares of U.S. companies, even if they are held in a Canadian brokerage account, including securities held in registered plans.
Canada does not have an estate tax; rather, your estate is subject to tax on the capital gains resulting from the deemed disposition of your assets at death. The U.S. has an estate tax and the rules have recently changed. As of January 1, 2013, the top estate tax rate was raised to 40 percent from 35 percent.
Your exposure to U.S. estate tax depends on the amount of U.S. situs assets you own at death and the size of your worldwide estate. Your worldwide estate is made up of the value of all of your assets regardless of where they are held and can include items such as the death benefit on an insurance policy.
If the value of your U.S. situs assets is less than US$60,000 at death, you will not be subject to U.S. estate tax regardless of the value of your worldwide assets. If the value of your worldwide estate is less than US$5.25 million at death, you will not be subject to U.S. estate tax regardless of the value of your U.S. situs assets. However, if the value of your worldwide estate is greater than US$5.25 million at death and the value of your U.S. situs assets is greater than US$60,000, you may be subject to U.S. estate tax.
If you may be subject to this tax, there are steps that you can take to help minimize the potential effects. Given the complexity of the topic, we suggest seeking assistance from a tax specialist familiar with U.S. estate tax law.