Under U.S Tax law, U.S citizens are subject to estate taxation with respect to their worldwide assets, regardless of whether they are residents of the U.S on passing. On the federal level, when a U.S person passes away, their estate in excess of the yearly exemption amount would be subject to this estate tax. The passing of the Tax Cuts and Jobs Act (TCJA) in 2017 saw the estate tax exemption double to USD $10 million and, as it has been indexed for inflation and increases marginally on a yearly basis, it currently sits at USD $13.61 million per person for 2024.
But what does this mean for non-U. S persons?
Certain deceased non-residents of the U.S are subject to U.S estate taxation in respect to their U.S situated assets, and these include:
- Real estate located in the U.S,
- Tangible personal property (excluding some art), and
- Stock of corporations organized in or under the U.S law, even if held in an account in a country other than the U.S
Should a non- U.S person pass away with these types of assets in their estate, the filing of Form 706-NA- United States Estate (and Generation-Skipping) tax return is required. It should be noted that if the U.S situated (”situs”) property has a fair market value of less than USD $60,000 on their passing, the filing is not required.
Under the Canada- U.S Tax Convention (1980) (“the Treaty”), there is an allowance given to Canadian residents to benefit from the same exemption amount that a U.S resident can claim in relation to the U.S estate tax on their U.S situs property. It should be noted that his exemption is prorated based on the ratio of the value of U.S situs assets compared with the value of the worldwide estate. Canadians are allowed, based on this, to access the “unified credit” which represents the tax on the effective exempted amount. For 2024, the unified credit is USD $5,389,800.
U.S estate tax is based on the following rates as of 2013 and onward:
| Taxable Estate | Estate Tax | ||
| From (USD $) | To (USD $) | Tax on bottom of range (USD $) | Rate on excess |
| 0 | 10,000 | 0 | 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 | and over | 345,800 | 40% |
To illustrate:
A single Canadian resident, non-U.S person passes away with a condo in Florida worth USD $1,500,000 and a worldwide estate of USD $18,000,000:
| Estate tax on USD $1,500,000: Tax on the first USD $1,000,000 | $345,800 |
| Tax on balance at 40% | 200,000 |
| Total before unified credit | $545,800 |
| Less: Prorated unified credit ($1,500,000/$18,000,000 x $5,389,800) | (449,150) |
| Net U.S. estate tax in 2024 | $96,650 |
In addition, the Treaty also makes allowances for the U.S estate taxes paid on death to be credited against U.S source income in the year of death on the Canadian tax return.
It should be noted that the revised estate tax exemption has a “sunset clause” which, without governmental intervention, will revert back to USD $5 million on January 1, 2026, its original value pre-2018.
Speak to your Welch LLP advisor to discuss whether how this issue impacts your situation and what planning may be available.
