US Estate Tax for Canadians

More scary news from south of the border with regard to the application of US Estate Tax for Canadians who own US real estate. Many Canadian snowbirds enjoy vacation properties in Arizona, California, Florida and other sunny locales. However, they may be unaware of recent legislative changes which introduced penalties for failure to file a US Estate tax return.

While US estate tax will only arise when the value of the US property exceeds the unified credit available under the Canada – US Tax Treaty, there is still a strong reason to file an estate tax return. When an estate tax return is filed for the Canadian resident decedent, the US property’s basis will be increased to the fair market value at the date of death. However, under the new rules, if a return is not filed, the basis of the property to the beneficiaries of the estate is deemed to be nil. Accordingly, when the beneficiary sells the property they may realize a significant capital gain and US personal income tax.

This unintended result can be avoided by ensuring that a US estate tax return is filed regardless of whether any US estate tax would otherwise be payable.

If you require additional information on this topic, please feel welcome to contact a member of the Manning Elliott Tax Team for assistance at 604-714-3600.

The above content is believed to be accurate as of the date of posting. Tax laws are complex and are subject to frequent changes. Professional advice should be sought before implementing any tax planning. Manning Elliott LLP cannot accept any liability for the tax consequences that may result from acting based on the information contained therein.