Canada-U.S. Tax Treaty Article XXIII, Article XXIX B
No U.S. estate tax is payable
in 2009 if total worldwide estate is under $3.5 million
in 2010, because U.S. estate tax is repealed for 2010
in 2011 and later, if total worldwide estate is under
$1 million
A U.S. estate tax return must be filed if a deceased
Canadian resident who is not an American citizen owned U.S.-situated assets
exceeding $60,000. fair market
value at death. However, if
the deceased made substantial lifetime gifts of U.S. property, a U.S. estate
tax return may be required even if the U.S. assets do not exceed
$60,000 at the time of death.
The deceased is subject
to U.S. estate taxation on their U.S. assets, including:
American real estate
tangible personal property in the U.S. (furniture, cars,
boats, etc.)
stock of corporations organized in or under U.S. law, no
matter where the stock certificates are physically located, even if they are registered in the name of a nominee (in street
name)
The U.S.
Internal Revenue Code s. 2104 states that "shares of stock
owned and held by a nonresident not a citizen of the United States
shall be deemed property within the United States only if issued by a
domestic corporation". The IRS was not able to confirm for
us whether Exchange-Traded Funds (ETFs)
or American Depositary Receipts (ADRs) which
invest in foreign corporations would be included as "issued by a
domestic corporation".
certain debt obligations within the U.S.
If, at the time of death, the entire worldwide estate of a
Canadian resident (other than a U.S. citizen) does not exceed $1.2 million, the U.S. will only impose estate tax on:
American real estate
personal property which is part of the business property
of a permanent establishment or fixed base in the U.S.
This means that shares in U.S. corporations would not be subject
to U.S. estate tax when the entire worldwide estate of the Canadian resident
does not exceed $1.2 million.
The total worldwide estate includes:
proceeds of insurance on the deceased's life, generally
including proceeds receivable by beneficiaries other than the estate
full value of property the deceased owned at the time of
death as a joint tenant with right of survivorship, unless the surviving
spouse is a U.S. citizen, in which case only half of the value is included
property the deceased and a surviving spouse owned as
community property
several kinds of transfers the deceased made before death
certain annuities to surviving beneficiaries
property in which the deceased either held a general
power of appointment at the time of death, or used or released this power in
certain ways before death
Note that the proceeds of a life insurance policy are not considered to be U.S.-situated
assets, so are not taxable.
The $1.2 million threshold, which is part of the Canada-U.S.
Tax Treaty, is irrelevant at present, because
estates up to $3.5 million are exempt for 2009. The threshold may be
important for 2011 and later, though.
The United States changed their laws regarding estate tax in
2001. The highest estate tax rates have been gradually reduced, and the
amount exempted from estate tax has been gradually increased. The amount
exempted has been increased by increasing the "unified credit" which
reduces taxes payable. The unified credit increases every year
until 2009. In 2010, the U.S. estate tax is repealed, so no estate tax
will be payable. In 2011, the old rules that applied prior
to 2002 will again be in effect, unless further legislation is passed.
Under the old rules, the exempted
estate amount was $1 million U.S., with a top estate tax rate of 55%.
The unified credit amount for U.S. residents is
$780,800 for 2008, which exempts a $2 million estate
$1,455,800 for 2009, which exempts a $3.5 million estate
The unified credit available to Canadians is prorated based
on the ratio of U.S. assets to total worldwide estate. Example:
$200,000 of U.S. assets
total estate valued at $3 million.
unified credit for 2008 = 780,800 x 200,000/3,000,000 =
$52,053, which is deducted from the gross estate tax calculated based on the
following table:
A
B
C
D
Taxable estate
Tax on amount
in column A
Tax rate on
excess over amount
in column A
over
up to
-
10,000
-
18%
10,000
20,000
1,800
20%
20,000
40,000
3,800
22%
40,000
60,000
8,200
24%
60,000
80,000
13,000
26%
80,000
100,000
18,200
28%
100,000
150,000
23,800
30%
150,000
250,000
38,800
32%
250,000
500,000
70,800
34%
500,000
750,000
155,800
37%
750,000
1,000,000
248,300
39%
1,000,000
1,250,000
345,800
41%
1,250,000
1,500,000
448,300
43%
1,500,000
2,000,000
555,800
45%
2,000,000
780,800
45%
For the above estate example, the tax on U.S.
assets of $200,000, when the total estate is $3,000,000, would be:
Tax on first $150,000
$38,000
Tax on next $50,000 at 32%
16,000
Gross estate tax
54,800
Less prorated unified credit:
200,000/3,000,000 x 780,800
(52,053)
Net estate tax
$2,747
This table shows some examples of net U.S. estate tax
amounts for 2008, depending on the size of the entire estate, and the amount
of the U.S. assets.
U.S.
Assets
Total
Estate
Gross
Estate
Tax
Prorated
Unified
Credit
Net U.S.
Estate
Tax
$200,000
$2,000,000
$54,800
$78,080
nil
100,000
3,000,000
23,800
26,027
nil
200,000
3,000,000
54,800
52,053
$2,747
300,000
3,000,000
87,800
78,080
9,720
400,000
3,000,000
121,800
104,107
17,693
300,000
4,000,000
87,800
58,560
29,240
400,000
4,000,000
121,800
78,080
43,720
For tax year 2009, the net U.S. estate tax would be zero in
all the above situations.
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