Serving Burlington, Oakville & Surrounding Areas
REDUCE TAXES – MAXIMIZE INCOME – INVEST SMARTER – PRESERVE WEALTH
Canadians who die owning “US situs property” – property that is considered to be situated in the US under US rules – may be subject to US estate tax on death. This can affect a vacation property.
This reference guide outlines what constitutes US situs property and highlights how and when US federal estate tax may apply, as well as some possible strategies that may be available to minimize US estate tax.
This is a quick list of what us discussed in detail in the reference at the end.
Under the US Internal Revenue Code, US situs property includes the following:
Note that certain assets are considered not to be US situs assets, such as the following:
In Canada, a person who dies is deemed to have disposed of all of his or her capital property at the fair market value of the property just prior to death (unless the property is transferred to a spouse or common-law partner or to a qualifying spousal trust or common-law partner trust). This can give rise to significant capital gains tax payable on death.
The US has a different method of taxation on death.
For deceased Canadians who were non-residents of the US, the Canada-US Tax Convention (the “Treaty”) applies to provide some relief from US estate tax. Under the Treaty, Canadian residents benefit from the same unified tax credit as for US citizens, except that the tax credit is prorated, based on the value of the deceased’s US situs assets compared to the gross value of the deceased’s worldwide assets.
It is important to keep in mind that the value of your assets, for the purposes of US estate tax, is determined in accordance with US rules. This can lead to some unexpected results. For example, unlike the rules in Canada, your estate would include the value of certain property that you transferred in the three-year period prior to your death.
While Canada allows a tax credit for foreign income tax paid on foreign-source income, this tax credit is not available for US estate tax paid since it is not an income tax. However, some potential tax relief may be available under the Treaty.
There may be some tax planning strategies available to minimize US estate tax. However, in considering these strategies, it would be very important to obtain professional cross-border tax and legal advice to ensure that the strategy is appropriate in your situation and that the complexity, costs and risks involved are properly weighed or assessed.
Possible strategies include:
Other Possible Strategies
It is possible that US gift tax and/or US generation skipping transfer tax could apply in certain circumstances. Professional advice should be obtained when you are considering gifting US situs property.
If you are a Canadian who owns US situs property, US estate tax may be payable on your death. However, with proper planning, in consultation with qualified cross-border tax advisors, it is possible that this potential tax liability could be reduced.
There are many complex issues and options to consider when dealing with the interaction of Canadian and US taxation. This is only a very brief overview of one aspect of these issues. We recommend that you obtain advice from qualified cross-border tax advisors to ensure that you optimize your Canadian and US tax situation..
Although this material has been compiled from sources believed to be reliable, we cannot guarantee its accuracy or completeness. All opinions expressed and data provided herein are subject to change without notice. The information is provided solely for informational and educational purposes and is not intended to provide, and should not be construed as providing individual financial, investment, tax, legal, or accounting advice. Professional advisors should be consulted prior to acting on the basis of the information contained herein.
Assante advisory services are offered through Assante Capital Management Ltd. and Assante Financial Management Ltd. Assante Capital Management Ltd. is a member of the Canadian Investor Protection Fund and Investment Industry Regulatory Organization of Canada. Assante is an indirect, wholly-owned subsidiary of CI Financial Corp. (“CI”). The principal business of CI is the management, marketing, distribution and administration of mutual funds, segregated funds and other fee-earning investment products for Canadian investors through its wholly-owned subsidiary CI Investments Inc. Wealth planning services may be provided by an accredited Assante advisor or by the professionals of the Wealth Planning Group of United Financial, a division of CI Private Counsel LP.
© 2013 Assante Wealth Management. All rights reserved.
Your personal information will not be distributed, sold, or traded – it will remain strictly confidential and will only be used for the purpose for which it was provided. For more information on Assante’s commitment to privacy and responsible use of information, please visit www.assante.com/privacy-policy.