Canadian and US Estate taxes
If you are a Canadian who own US "Situs" property (US Property) at the time of your death you may be subject to US estate taxes. Common examples of US Situs property include US real estate and shares in US corporations. Many Canadians who spend the winters in Florida would have a US vacation property and many Canadians who trade stocks might own shares of US companies. US estate taxes may apply even though your US shares are in your RRSP, RRIF or TFSA.
What happens on your death? In Canada you will have to pay capital gains taxes on the growth of investments even though you did not physically sell it. This is called a deemed disposition based on the current market value on the date of death. If you own US Situs property you could be subject to an additional US estate tax. US estate tax will apply if the value of your US Situs property is more than $60,000 and the value of your worldwide assets exceeds the exclusion amount of $5,340,000 (2014 figure) Worldwide property includes all property passing on death whether inside or outside of your estate and includes US property, life insurance, RRSPs, RRIFS and the value of survivor pension benefits. For jointly held property with the right of survivorship a deduction is available for any contribution made by the surviving owners only if proof is filed wiith the US estate tax return.
What are some planning opportunities to reduce estate taxes?
1. Transfer property to a spouse during your lifetime.
2. Invest in the US market through Canadian mutual funds. You can still invest with US dollars
but since the mutual fund is from a Canadian entity it is not subject to the US estate tax rules.
3. Life insurance can be used to pay for the US estate taxes as life insurance on a Canadian is
not a US Situs property. If the owner of the Life insurance is not the deceased than the death
benefit does not need to be included in the deceased worldwide income. You can transfer
the ownership of your life insurance policy to another person or trust to accomplish this
objective.
4. Use a Canadian holding company to own the US Situs property since the company will
continue to survive after the death of the individual.
How are estate taxes calculated? This will be left for a future blog post.
**Information in these blogs are for information only and should not be viewed as advice. Please consult with your independent tax or legal professional prior to taking any actions.**
