U.S. Estate Tax for Canadians Explained

Introduction
Understanding U.S. estate tax for Canadians explained is essential for anyone in Canada who owns U.S. assets — such as U.S. real estate, U.S. stocks, U.S. partnership interests, or U.S. business property. Many Canadians wrongly assume that U.S. estate tax only affects Americans. In reality, Canadians can face U.S. estate tax on death simply by owning U.S. property, even if they lived their entire life in Canada. U.S. estate tax applies to U.S. situs assets, and depending on the value of your worldwide estate, your heirs may face a significant tax burden. Proper planning can eliminate or dramatically reduce exposure. This guide explains everything Canadians must know about U.S. estate tax, treaty protections, filing rules, exemptions, and preventive strategies.

Legal and Regulatory Framework
U.S. estate tax for Canadians explained is governed by the U.S. Internal Revenue Code, U.S. federal estate tax rules, the Canada–U.S. Tax Treaty (Article XXIX-B), IRS Form 706-NA (U.S. Nonresident Estate Tax Return), FIRPTA rules for U.S. real estate, U.S. situs property definitions, provincial succession laws including Québec’s Civil Code, and foreign tax credit rules under the Income Tax Act. Estate tax applies separately from income tax and requires its own filings.

When Canadians Are Subject to U.S. Estate Tax
Canadians are subject to U.S. estate tax if they own U.S. situs property at death. U.S. situs property includes:
U.S. real estate (homes, condos, rental units, vacation property)
U.S. stocks of U.S. corporations (even if held in a Canadian brokerage)
U.S. business assets
U.S. partnership interests
Certain U.S. mutual funds and ETFs
Safety deposit boxes in the U.S.
Pre-immigration trusts with U.S. assets
Estate tax applies regardless of where the Canadian resident lived.

What Is Not Considered U.S. Situs Property?
Non-situs assets include:
Canadian real estate
Canadian stocks and funds
U.S. government bonds (in many cases)
RRSPs, RRIFs, and TFSAs containing U.S. securities
Cars, jewelry, art inside Canada
Intangible property not connected to the U.S.
Only assets legally tied to the U.S. are subject to estate tax.

Estate Tax Threshold for Canadians
The U.S. federal estate tax exemption for U.S. citizens is USD $13.61 million (2024 value). Canadians are not entitled to this amount directly. Instead, under the Canada–U.S. Tax Treaty, Canadians receive a pro-rated exemption based on the formula:
U.S. estate tax = estate tax * (U.S. situs assets / worldwide assets)
This means Canadians with high worldwide wealth but modest U.S. property may still face estate tax exposure. If your worldwide wealth exceeds USD $13.61 million, the exemption may be significantly reduced.

Tax Rates
U.S. estate tax rates range from 18 percent to 40 percent depending on taxable base. The maximum 40 percent rate applies to large U.S. asset values.

U.S. Estate Tax on U.S. Real Estate
Canadian residents owning U.S. real estate — rentals or vacation homes — are exposed to estate tax at death. For example:
If your worldwide wealth is CAD $8 million and your Florida condo is valued at USD $600,000, your estate may owe U.S. estate tax on a portion of that amount. FIRPTA withholding applies only to property sales, not estate tax, so estate tax exposure remains significant.

U.S. Estate Tax on U.S. Stocks
U.S. stocks such as Apple, Microsoft, Tesla, Amazon, and other American corporations are considered U.S. situs assets even if held in a Canadian brokerage or through Wealthsimple/Questrade/NBDB. A Canadian with a large U.S. stock portfolio may face estate tax if total holdings exceed Treaty thresholds.

How Québec Residents Are Affected
Québec’s Civil Code governs succession, but U.S. estate tax rules remain unaffected. Québec executors must probate the will or notarial will and file Form 706-NA with the IRS if U.S. situs assets exceed USD $60,000. Québec does not provide provincial estate tax relief but allows foreign tax credits for estate tax where applicable.

Filing Requirement — IRS Form 706-NA
If a deceased Canadian owned U.S. situs property exceeding USD $60,000 in fair market value, the estate must file IRS Form 706-NA even if no tax is owed. This returns allows:
Treaty exemption claims
Proration calculations
Valuation submissions
Assessment of estate tax liability
Failure to file may prevent distribution or sale of U.S. property and expose executors to liability.

Foreign Tax Credits
The Canada–U.S. Tax Treaty provides foreign tax credit relief if the estate pays U.S. estate tax. Credits can be applied to Canadian capital gains tax where applicable. Complex calculations are required to avoid double taxation.

Common Mistakes Canadians Make
Buying U.S. property without estate planning
Holding large U.S. stock positions personally instead of through corporations or RRSPs
Assuming U.S. estate tax doesn’t apply to Canadians
Failing to track worldwide estate value
Omitting IRS Form 706-NA
Improperly titling U.S. real estate (joint tenancy issues)
Ignoring state-level estate or inheritance taxes
Not updating wills to include U.S. situs assets
Using U.S. LLCs that cause double taxation in Canada
These mistakes lead to significant estate tax liability and distribution delays.

Key Court Decisions
Courts confirm that U.S. situs property is taxed regardless of the taxpayer’s country of residence. Courts have upheld IRS reassessments for Canadians who misreported values or failed to file Form 706-NA. In Treaty cases, courts support proration of exemptions but require strict documentation and valuations.

Why CRA and IRS Audit Canadians with U.S. Property
Because FATCA and CRS share global financial data, Canadian investors cannot hide U.S. holdings. IRS and CRA audit Canadians for:
ownership of U.S. real estate
large U.S. stock portfolios
foreign trust interests
undisclosed partnership holdings
U.S. rental income mismatches
FIRPTA filings for past property sales
estate tax exposures above USD $60,000
Both agencies coordinate cross-border enforcement.

Mackisen Strategy
Mackisen CPA provides full planning for U.S. estate tax exposure. We evaluate total worldwide wealth, assess Treaty-protected exemptions, calculate estate tax liability, prepare Form 706-NA, structure U.S. property ownership efficiently, advise on using corporations or partnerships, coordinate with lawyers and notaries, plan for U.S. stock exposure, and optimize cross-border estate structures for long-term tax reduction.

Real Client Experience
A Montreal couple owned Arizona real estate worth USD $900,000 and had worldwide wealth exceeding CAD $10 million. Mackisen minimized estate tax exposure through Treaty planning. A Toronto investor held USD $1.2 million in U.S. stocks and faced estate tax risk; we restructured holdings into RRSPs and corporate accounts. A Québec family inherited Florida property without filing 706-NA; we completed the filings and avoided IRS penalties. Another client faced double taxation when selling inherited U.S. property; we resolved capital gains and estate tax credit issues.

Common Questions
Do Canadians really pay U.S. estate tax? Yes, if they own U.S. situs assets.
Does FIRPTA relate to estate tax? No — FIRPTA applies to sales, not death.
Is U.S. real estate dangerous for estate tax? Yes, especially for high-wealth Canadians.
Do U.S. stocks count toward estate tax? Yes.
Can RRSPs reduce exposure? Yes — U.S. stocks inside RRSPs are exempt.
Do I need to file Form 706-NA? Yes if U.S. assets exceed USD $60,000 at death.

Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps Canadians understand and minimize U.S. estate tax exposure. From planning U.S. real estate ownership to managing cross-border stock portfolios, preparing Form 706-NA, and coordinating CRA and IRS positions, our expert team ensures your estate is protected, compliant, and tax-optimized.