Many Canadians own property or investments in the United States. Whether it’s a vacation home in Florida, shares in a U.S. company, or cash held in a U.S. brokerage account, these assets can create exposure to U.S. estate taxes when you pass away. The rules are somewhat complicated, but understanding them is essential for proper planning.
What Counts as U.S.-Situs Property
U.S. estate taxes apply to assets considered “U.S.-situated.” This includes:
- Real estate located in the U.S.
- Shares of U.S. corporations (even if held in a Canadian brokerage account)
- Tangible personal property located in the U.S.
It generally does not include cash deposits with U.S. banks, certain government bonds, or shares of Canadian mutual funds and ETFs that invest in U.S. securities.
The Limited Exemption for Non-Residents
If you are a Canadian resident but not a U.S. citizen or green card holder, your U.S. estate tax exemption is only US$60,000. If your U.S.-situated assets exceed this threshold, your estate may need to file a U.S. estate tax return (Form 706-NA), even if no tax is ultimately payable.
How the Canada-U.S. Tax Treaty Helps
The Canada-U.S. Tax Treaty provides important relief. It allows Canadian residents to claim a pro rata share of the U.S. unified credit (the large exemption available to U.S. citizens) based on the proportion of their U.S. assets relative to their worldwide estate.
For example, if 10% of your worldwide assets are in the U.S., your estate could claim 10% of the U.S. exemption amount. This can significantly reduce or even eliminate U.S. estate tax liability.
The Current U.S. Estate Tax Exemption (2025)
For U.S. citizens and residents, the estate tax exemption is US$13,990,000 in 2025. Canadians benefit indirectly from this number through the treaty’s pro rata credit.
This exemption was scheduled to “sunset” in 2026, dropping to about US$5 million indexed for inflation. However, the 2025 One Big Beautiful Bill (OBBB) confirmed a more permanent extension of the higher exemption, removing much of the near-term uncertainty.
Estate Tax Rates
If tax is owed, U.S. estate taxes are applied at graduated rates starting at 18%, rising to a maximum of 40% on taxable amounts over the threshold. Combined with Canadian tax rules, careful planning is needed to avoid unnecessary double taxation.
Filing Requirements
Even if no tax is due, Canadian estates must generally file Form 706-NA if U.S. assets exceed US$60,000. This is an important compliance obligation that often gets overlooked.
Example Scenarios
Scenario 1: Florida Vacation Home
- Mr. and Mrs. Smith, Canadian residents, own a Florida condo worth US$1,000,000. Their worldwide estate is valued at US$10,000,000.
- U.S. assets = 10% of worldwide estate.
- Pro rata exemption = 10% × US$13,990,000 = US$1,399,000.
Since their U.S. assets (US$1,000,000) are below the pro rata exemption, no U.S. estate tax would be payable, though a U.S. estate tax return must still be filed.
Scenario 2: U.S. Brokerage Account
- A Canadian investor holds US$500,000 of U.S. based stock in a Canadian brokerage account, and their worldwide estate is US$2,000,000.
- U.S. assets = 25% of worldwide estate.
- Pro rata exemption = 25% × US$13,990,000 = US$3,497,500.
Again, no U.S. estate tax is payable because the pro rata exemption exceeds the U.S. holdings, but a filing is required.
Scenario 3: Larger U.S. Real Estate Portfolio
- A Canadian business owner has US$8,000,000 of U.S. real estate within a worldwide estate of US$20,000,000.
- U.S. assets = 40% of worldwide estate.
- Pro rata exemption = 40% × US$13,990,000 = US$5,596,000.
- Taxable U.S. estate = US$8,000,000 – US$5,596,000 = US$2,404,000.
At estate tax rates up to 40%, this could generate a tax bill approaching US$1,000,000. Proper planning would be critical in this case.
Why Planning Matters
Failing to plan for U.S. estate tax exposure can create unexpected tax bills and filing headaches for your heirs. Options such as holding assets through Canadian entities, gifting strategies, or life insurance can mitigate exposure, but these require careful consideration.
Take Action Today
If you own U.S. property or investments, it’s wise to review your estate plan under the latest rules. The good news is that the treaty provides meaningful protection, but proper planning and documentation are essential.
Solutions
Obviously, Canadians without any further ties to the United States will likely want to take steps to shield their estates from US estate taxes. So, if you have more than $60,000 USD in US situated assets, below are some basic ways to protect yourself from US estate taxes.
It’s also worth noting that there is no ideal structuring method. Each way requires trade-offs and there are better and worse ways to hold US situated assets based on the type of asset (such as stocks, personal use real estate, income producing real estate, operating businesses, etc.).
When deciding how to protect your estate from US estate taxes, its important to consult with a lawyer and accountant who specialize in estate planning and have some experience with US taxes for the best advice.
Canadian Corporations
When you own US situated assets worth more than $60,000 USD, you can often transfer ownership of those US assets to a Canadian based corporation to protect yourself from US estate taxes. This method is simple from a compliance perspective and works particularly well if your only US situated asset are US listed stocks. The downside of using a corporation to hold your US stocks is it invites an additional layer of tax rules to your portfolio (i.e. the tax rules for corporations are different from the tax rules for individuals including different rates/ways to apply capital gains, interest, and dividends).
Canadian Resident Trusts
US situated assets can be owned by Canadian resident trusts created for holding those assets. Its important to ensure the trustees are Canadian and should likely be someone other than yourself. Otherwise, those assets held in the trust may be drawn into US estate filings anyway. Canadian resident trusts created for the purpose of holding US assets to shield an estate from US estate taxes should be drafted for this purpose. The 21-year rule on realizing capital gains may also apply to assets held inside trusts.
Hold Specific ETFs
Instead of holding ETFs traded in the US, hold ETFs traded in Canada. For example, if you currently hold an S&P 500 ETF traded on a US exchange, consider holding an S&P 500 ETF traded on a Canadian exchange. Canadian listed ETFs holding US stocks are not considered US situated assets.
Sell your US situated holdings
After considering all the alternatives, it might be best for you to simply avoid holding any US situated assets in your own name. Unless you have other important ties to the United States, this will ensure that your estate is not drawn into paying an US estate taxes.
