# Required to file US tax return if deceased owns US stocks



## james4beach (Nov 15, 2012)

The most recent information I heard really surprised me -- I want to double check with you folks.

Apparently, a US tax return *must be filed* if a deceased Canadian (even if they have no ties to the USA at all, not resident or US person) owns more than $60,000 US of stock and/or property. They wouldn't owe any estate taxes unless they exceed $5 million estate size, but apparently $60,000 is the threshold at which a US return must be filed. There's a lot of hassle in filing and following up with the IRS, so this is no small task.

http://www.taxtips.ca/personaltax/usestatetax.htm

Is that really true? If so, I see value in avoiding all American stocks/ETFs and whenever possible using a Canadian alternative, even if it just wraps the US investment. For example ZSP or XUS would be superior to owning American indices VTI/IVV because of where the fund is domiciled.

Thoughts? I'm just shocked the threshold is so low, at $60 K. After my recent years filing with the IRS, I'm looking forward to washing my hands forever and never interacting with the IRS again.


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## james4beach (Nov 15, 2012)

And what happens if you don't file this?


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## heyjude (May 16, 2009)

I'm not well versed in this area, but when my (Irish) mother died 11 years ago, a US tax return had to be filed because she owned a US mutual fund which was held in trust for me. This was a prerequisite to getting the funds released from the trust. However, it was just one form, no big deal.


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## humble_pie (Jun 7, 2009)

james4beach said:


> And what happens if you don't file this?




1) as heyjude shows, the IRS has the power to require all US financial institutions to *not* release any US assets until the estate of the deceased non-resident alien produces the above-mentioned tax return.

canadian brokers, financial advisors etc will, of course, cooperate. There won't be any choice.

most canadian brokers - perhaps all - are using what are called "jitney brokers" for US trades. The network is ancient & works seamlessly. But the jitneys are all US firms. All the more reason for them to lock down US assets upon the death of any canadian beneficial owner.


2) i don't believe jas4 is quite right when he says estate taxes will not be triggered below a $5 million threashhold.

that $5 million threshhold is for US resident taxpayers & US citizens residing abroad who remain taxable to their mother country.

non-resident aliens - canadian resident taxpayers who are not US citizens are all classed by washington as "US non-resident aliens" - who pass away while in possession of some US assets will have that $5 million exemption pro-rated to the proportion of US assets within their global asset inventory. For example, a party with 20% US assets might expect the US estate tax exemption to drop to roughly 20% of $5 million.

i've also read that the IRS includes RRSPs & RRIFs in calculation of a deceased total global assets, plus all real estate whether principal residence or not.

owning US real estate such as a vacation property complicates the situation even further. It's my understanding that there are some accountants in cmf forum with knowledge or expertise in this area, perhaps they might consider posting on this topic.


3) it's always been my understanding that a deceased canadian's estate has to produce a final canadian tax return to the IRS as well. I didn't know that a US return is also required. The purpose of the canadian tax return is to assist the IRS in determining what a deceased non-resident alien's estate actually holds as total global assets.

the present foreign estate tax legislation was passed a long time ago. Dubya Bush enacted a postponement, so foreign estate tax did not arrive during his presidency. It fell to barack obama, who was president when the postponement expired. Obama did not re-postpone.

it's always been clear that enforcement of estate taxes upon non-resident aliens would be accomplished by the financial intermediaries, who would be forbidden to release assets to heirs until the foreign estate had been levied & cleared by the IRS. This sounds easy to write, but in practical terms, getting this machinery to work properly would take years of tinkering & adjustment.

it's my belief that we're still in a kind of development stage, ie assets are not yet being frozen & canadian heirs are not yet being blackmailed by washington for a final income tax return upon the deaths of various canadian parents, grandparents & other benefactors. But afaik this final stage is being prepared.


.


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## mordko (Jan 23, 2016)

Anyone who has worldwide assets over US$5.45 Million could be subject to American estate taxes if a portion of these assets is held in the US. http://www.osullivanlaw.com/Advisor...rations-for-Canadians-with-US-Connections.pdf


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## andrewf (Mar 1, 2010)

Does this apply to funds held in registered accounts or through corporations (CCPCs)?


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## kcowan (Jul 1, 2010)

I think the $60,000 was the older rule before the WW holdings was increased to over $5 million. Practically this would apply to any real estate holdings. It also applies to a surviving spouse as there in no automatic rollover upon death.


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## Nerd Investor (Nov 3, 2015)

To clarify a bit:

The $60,000 threshold still applies. If you are below $60,000 of US situs assets you won't have to file at all. 
The requirement involves filing a US estate tax return, not a US income tax return. 

If you're _worldwide assets_ are under US$5.45 Million you should not incur any estate tax. (Under the Canada-US tax treaty we receive the same unified credit that US residents receive to apply to estate tax). 
In the event you are subject to US estate tax, you can use this amount as a foreign tax credit and apply it to the tax on your final Canadian return attributable to that property. 

Filing is a pain, but shouldn't be the end of the world.


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## twa2w (Mar 5, 2016)

Here is a good link that explains it well if you read carefully. :-( 

https://www.bdo.ca/en-ca/insights/t...bulletin-u-s-estate-tax-issues-for-canadians/

There is a small estate exemption if total estste is less than 1.2 million.

No, rsps corps are not US property for estste rules but they have to be included in value of estste


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## heyjude (May 16, 2009)

heyjude said:


> I'm not well versed in this area, but when my (Irish) mother died 11 years ago, a US tax return had to be filed because she owned a US mutual fund which was held in trust for me. This was a prerequisite to getting the funds released from the trust. However, it was just one form, no big deal.


The other wrinkle that I just remembered was that the American fund would not release the funds in the trust until the Irish tax return had been completed and processed. This required written communication from the Irish lawyer.


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## My Own Advisor (Sep 24, 2012)

Nerd Investor said:


> To clarify a bit:
> 
> The $60,000 threshold still applies. If you are below $60,000 of US situs assets you won't have to file at all.
> The requirement involves filing a US estate tax return, not a US income tax return.
> ...


Exactly what I believe as well.


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## humble_pie (Jun 7, 2009)

.

i for one don't believe the issue should be casually swept under the rug.

twa2 has very kindly posted a link to an excellent BDO file on US estate taxation. Here's the link again. Personally i feel every canadian investor with more than $60k in US assets - including RRSP or RRIF - ought to read the linked PDF veree carefully! i hope twa2 will forgive me if i post this valuable link again.

https://www.bdo.ca/getattachment/1edd79e5-957d-4bde-a186-e3244cd13f3d/attachment.aspx/


as others have made clear, it's not a US income tax return that's required but rather an estate tax declaration.

two problems that come to mind right off the bat are (a) extra cost for the heirs in preparing & filing the IRS estate tax form; & (b) extra delays in waiting for IRS estate billing and/or clearance.

furthermore, my understanding is that any US estate tax owing to washington will only be deductible on a canadian end-of-life final tax return as a deduction against US income. Perhaps this is not correct, but my understanding is that such US tax will not be deductible against taxes on canadian income that are owed by the deceased.

the BDO document does make clear that the $5.4M estate exemption is, for canadian non-resident aliens, to be pro-rated according to the proportion of US assets in the total estate inventory of assets.

this should not be excessively harsh or punitive since the proportionate ratio & the resulting exemption will tend to lower or rise, if not in lock-step, at least hand-in-glove.

.


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## james4beach (Nov 15, 2012)

OK so there really is a $60,000 threshold and you have to file an estate return... not the same as a regular tax return.

I really hope every investor reads the document humble_pie linked to. I bet that very few investors are aware of this.

Obviously it's a pain in the butt to have to add something like that to the existing adventure of closing out an estate. I'd rather avoid it, personally.


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## My Own Advisor (Sep 24, 2012)

There are ways to avoid this mess as well, that's worth noting.

The main one - hold CDN listed ETFs that hold US assets (stocks, ETFs) etc. in your registered and non-registered accounts. 

Consider holding less than <$60k of U.S. situs assets as you do some estate planning: 

U.S. situs assets is a fancy term that includes the following stuff:

Real estate property (e.g., condo in Florida) and other tangible property situated in the U.S.,
U.S. securities, including those held in a discount brokerage account in Canada or outside Canada like:
U.S. mutual funds including money market funds,
U.S. securities including ETFs and stocks in an RRSP, RRIF, RESP or TFSA,
Any business-related assets owned by a sole proprietor and used in a U.S. business activity,
Some U.S. debt obligations.


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## james4beach (Nov 15, 2012)

Just so I'm clear on this, are Canadian-listed ETFs fine? Are these free from the $60,000 total?

ZSP, XUS, XSP, etc
Canadian bank mutual funds like RBC US Index Fund

For example if someone holds SPY & VT, can they just replace those with ZSP and be free from this?


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## humble_pie (Jun 7, 2009)

james4beach said:


> OK so there really is a $60,000 threshold and you have to file an estate return... not the same as a regular tax return.
> 
> I really hope every investor reads the document humble_pie linked to. I bet that very few investors are aware of this.



actually it was twa2's link, i just repeated it - with grateful acknowledgment to twa2 - because it's important material.

when dubya's postponement of estate tax upon deceased foreign non-resident aliens ended around 2010, there was sporadic talk in cmf forum about what it would mean to canadians. But nobody on here was interested in the issue at that time.

at the time (few years ago) Canadian Capitalist thought that new funds & ETFs would spring up that would be domiciled in canada but hold US securities, in order to avoid the alien estate tax.

then & now, BDO seems to take a leadership position among big accounting firms in making at least some of their expertise available to the general public, as per twa2's link.

so far, it seems that the newish washington rules on foreign estate taxation are not yet being fully applied, at least not on a mass scale. Me i tend to believe that the IRS apparatus to reach its fingers into deceased alien estates is only in the mid-development stage.

.


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## james4beach (Nov 15, 2012)

I agree that the IRS is done not with this. Just think of what the US has done in the last few years with increased aggressiveness with FBAR and FATCA. They are steadily grabbing more and more tax from foreign investors. They aren't done with this. Because of America's horrible fiscal situation, this is going to get worse. Which is why I want to separate myself as much as possible from US tax obligations.

Can someone clarify for me, are Canadian-domiciled US index investments (ZSP, XUS, XSP) free from being included in this $60,000 threshold?


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## My Own Advisor (Sep 24, 2012)

I'm not a tax whiz james but my understanding is yes, Canadian-domiciled ETFs (even those that hold US assets), are exempt from US estate tax. Doesn't matter the amount. 
https://www.bmo.com/gam/ca/investor...-funds-etfs/article-mutual-fund/us-estate-tax


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## humble_pie (Jun 7, 2009)

My Own Advisor said:


> I'm not a tax whiz james but my understanding is yes, Canadian-domiciled ETFs (even those that hold US assets), are exempt from US estate tax. Doesn't matter the amount.
> 
> https://www.bmo.com/gam/ca/investor...-funds-etfs/article-mutual-fund/us-estate-tax




another excellent resource from MOA.

i've set up a file with these 2 documents - moa's BMO link & twa2's BDO link - & will toss in more as time goes by. Forewarned is forearmed.


.


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## Nerd Investor (Nov 3, 2015)

Yes, any Canadian mutual funds (including ETFs) are not considered US property for estate tax purposes regardless of what they hold. 

While it is extremely important to be aware of these rules and requirements, I am personally not going to change how I invest or undergo any complex planning simply to avoid having my estate file an extra estate return several decades from now (well, hopefully it's several decades from now :friendly_wink. If my worldwide assets ever approach the exemption limit, obviously that changes things.


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## mordko (Jan 23, 2016)

Interesting if they count DB pension as your worldwide asset, particularly if their is a component inherited by the spouse. I assume not...


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## humble_pie (Jun 7, 2009)

Nerd Investor said:


> If my worldwide assets ever approach the exemption limit, obviously that changes things.



the BDO document sets forth how the current threshhold for US investors - $5.4M inflation-adjusted - is pro-rated for alien foreign estate calculations. The exemption is according to the ratio of US assets in the total global alien estate. One-fifth US assets = one-fifth US basic exemption, broadly speaking.

it's easy for a global canadian estate to run over $1M for washington's alien non-resident estate purposes. Their global calculation includes all real estate including principal residence in canada. It includes all life insurance policies. It includes all RRSP, RRIF, TFSA.

.


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## mordko (Jan 23, 2016)

humble_pie said:


> the BDO document sets forth how the current threshhold for US investors - $5.4M inflation-adjusted - is pro-rated for alien foreign estate calculations. The exemption is according to the ratio of US assets in the total global alien estate. One-fifth US assets = one-fifth US basic exemption, broadly speaking
> 
> .


Can you provide a quote that you are basing this assertion on?


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## humble_pie (Jun 7, 2009)

mordko said:


> Can you provide a quote that you are basing this assertion on?



it's not an assertion. It's a statement in the BDO document which has recently been linked three or four times in this thread alone ... have you read the document?

.


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## mordko (Jan 23, 2016)

Yes I have, as well as the other references. It's very clear that if your worldwide assets are less than 5.45 million USD then there will be no US estate taxes payable.


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## humble_pie (Jun 7, 2009)

^^

no, it's not clear at all. Everything will depend upon the pro-ration. Unusually rich clients with small pro-rated US holdings will be the likeliest to be hit. However, they will receive canadian tax credits for some or all of the US alien non-resident estate tax owing.

please do continue to hand out "financial" mis-advice & dis-advice to your clients as usual, though, quite entertaining.

.


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## mordko (Jan 23, 2016)

^ yes it is 100 percent clear. Taxes will be charged pro rata on the US fraction of your assets, but only IF your worldwide holdings are worth over 5.45 million USD. 

I don't work in the financial industry and have no clients seeking financial advice. I can read though which does help.


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## Spudd (Oct 11, 2011)

I agree with Mordko on this. I read through the BDO link provided and I think the relevant portion is the paragraph on the last page entitled "Reduce the value of your Canadian estate". I would cut/paste it here, but it seems like they have disabled cut/paste.


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## humble_pie (Jun 7, 2009)

fortunately, i read very well. Also accurately. Also am lucky enough to have a near-perfect photographic memory.

BDO document page 4, top left column. As Spudd says, BDO has disabled copy/paste. Nevertheless, here is a verbatim reproduction of the text:

*" However, canadian residents must remember that the exemption is pro-rated based on the ratio of the value of U.S. situs assets compared with the value of the estate as a whole."*


to repeat for the umpteenth time, the BDO document calls for the pro-rating of the basic $5M threshhold exemption that was originally granted to US resident taxpayers & US citizens living abroad.

the BDO document could not be more crystal clear. Throughout the document, BDO distinguishes between "US residents" and foreign non-resident aliens & their estates. The words "non-resident aliens" are key. 

the estates of such dearly departed alien personnages are *not* to be given full exemption status. That privilege is to be reserved for US citizens, US green card holders & US citizens residing abroad.

the pro-rating of the exemption has been spelled out by numerous accounting & law firms commenting on the various versions of the US acts under recent successive US presidents. It is my understanding that calculations differ - in fact become more complicated - when a deceased party leaves US situs real estate such as a vacation property.

it's astonishing how many canadians continue to insist on believing that their estates will benefit from the same $5M-inflation-adjusted exemption as stateside US taxpayers, though. 

PS the BDO document refers to the concept of domicile but states that domiciliation issues are more complex than is the scope of the firm's linked document. Therefore, the BDO authors say, they will not treat domicile in this document. Nevertheless, domiciliation issues - possibly arising through dual citizenship - can complicate the winding-up of an estate.


.


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## Spudd (Oct 11, 2011)

Humble, I respect your intelligence and reading skills. But I am confused, because in the paragraph I mentioned, they say the following (reproduced manually, underlining mine):

For some people, an estate liability can arise because the value of the individual's world-wide estate is much higher than their U.S. estate. This is due to the proration of the Treaty exemption and the proration of general liabilities discussed earlier. So, if you can take steps to reduce the value of your total estate, a higher unified credit will be available after the proration. Also, a higher proportion of your general liabilities will be applied against your U.S. situs property if the value of your estate is reduced. Reducing the value of one's estate below $5,450,000 would eliminate U.S. estate taxes completely for deaths in 2016. 

This seems to contradict what you are saying. 

In any case, in the example they provided where a person had 1.25M in US real estate and a 6+M estate, the estate only had to pay $22k in estate tax. So I think this is not worth really worrying about. The larger worry is the requirement to file the darn tax form for any amount of US holdings over 60k. That would affect a lot of people's estates and is a pain in the butt.


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## mordko (Jan 23, 2016)

> " However, canadian residents must remember that the exemption is pro-rated based on the ratio of the value of U.S. situs assets compared with the value of the estate as a whole."


Absolutely. That's why if you have more than $5.45 million total worldwide, you will be taxed on your US allocation with exemption applied pro-rata, as the example shows. 

Let's take another example. Say I have USD 5,000,000 worldwide of which USD 1,250,000 is in the US and die in 2016.

In that case the US estate tax before applying credit for exemption = $445,000.

However the credit for exemption would be $531,450.

Therefore my estate would end up paying nothing. 

Not really that complicated at all.


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## humble_pie (Jun 7, 2009)

Spudd said:


> Reducing the value of one's estate below $5,450,000 would eliminate U.S. estate taxes completely for deaths in 2016.
> 
> This seems to contradict what you are saying.



i don't believe the above sentence plus the fuzzily-written paragraph to which it belongs, does "contradict" the far more stark & clear quote from page 4 column 1, which i presented just upthread.

as you surely must know, the BDO document would have been written by a team. Would have had at least one editor, possibly several. It's my belief that the weak & fuzzy paragraph you are quoting is 100% over-ridden by the clear statement on page 4, namely, that exemptions are to be pro-rated to the proportion of US assets in a global estate.

over the years i've browsed other professional commentaries on US taxation of non-resident alien estates & i've glimpsed many discussions of this exemption pro-rationing.

a pro-rated exemption itself is not so bad, since a smaller exemption will mean a smaller US holding, etc. etc. I believe i posted above that the relationship will float as a rough pair, save & except for the mega-rich whose US holdings may constitute a small portion of their global estate but the estate dollar total will be so astronomically high that the pro-rated exemption may not suffice.

i totally agree with you that the real downer for most canadians is/will be the bureaucratic hassle & the delays this can cause. I also agree with nerd_investor when he says the probability of this affecting him during the next several decades is low, therefore he's going to invest in US securities & live life normally as before. Me i think that's a sensible approach.

but for parties involved in estate planning & for many elderly folks, knowing what could happen is a boon. I still believe that forewarned is forearmed.

.


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## humble_pie (Jun 7, 2009)

mordko said:


> Absolutely. That's why if you have more than $5.45 million total worldwide, you will be taxed on your US allocation with exemption applied pro-rata, as the example shows.
> 
> Let's take another example. Say I have USD 5,000,000 worldwide of which USD 1,250,000 is in the US and die in 2016.
> 
> ...



i've already said this. Several times in just this thread. The pro-rated exemption will roughly track the proportion of US holdings in an alien NR estate except for the exceptions.

i've mentioned one kind of exception, the mega-rich. A more common kind of exception could be cases with domiciliation issues. Not so many authorities are willing to get into these issues as they are ferociously complex & can depend, in the end, on a deceased's state of mind & the interpretation of his ultimate intentions.

but someone with dual citizenship & patterns of links to both countries - there are very many canadians who fit this profile - could have domiciliation issues.

.


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## mordko (Jan 23, 2016)

Not sure exactly what you are rambling on about now, but the bottom line is that Canadians with less than USD 5.45 million worldwide assets will not pay any US estate taxes. 

I had stated this earlier in this thread to which you responded


> "no, it's not clear at all".


. Well, hope between Spadd and myself we managed to make it clearer for you.


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## mordko (Jan 23, 2016)

Obviously, the exemption applies to Canadian residents.


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## humble_pie (Jun 7, 2009)

mordko said:


> ... the bottom line is that Canadians with less than USD 5.45 million worldwide assets will not pay any US estate taxes.



since mordko doesn't like explanations & prefers to believe his own fantasies, perhaps i could say - for the benefit of any readers who might browse this thread - that the mordko is dead wrong .:biggrin:

.


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## newuser (Sep 16, 2014)

humble_pie said:


> since mordko doesn't like explanations & prefers to believe his own fantasies, perhaps i could say - for the benefit of any readers who might browse this thread - that the mordko is dead wrong .:biggrin:
> 
> .


I was browsing this thread and got confused.

Say my assets are less than USD $5.4 mil, have no US vacation property, and rarely steps foot inside the US. I do have some small regular USD capital gains from Employee Stock Purchase Plan though. Do I have to worry about this?


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## mordko (Jan 23, 2016)

^ No. 

HP is clueless but don't take my word for this. If the above is too confusing, try this:



> Under the Canada-US Tax Treaty (the Treaty), Canadian residents will now have a US estate tax liability only if their worldwide assets are valued at more than $5.45 million


.

http://www.pwc.com/ca/en/services/t...ate-tax-update-us-tax-exposure-canadians.html


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## humble_pie (Jun 7, 2009)

mordko said:


> HP is clueless



lol. what a bully. what a thug. can't stop with the insults & the tantrums. impulse-ridden. like the donald. .:frog:


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## Nerd Investor (Nov 3, 2015)

There certainly seems to be a lot of confusion and back and forth in this thread. Let me re-attempt to clarify:

A Canadian who has a worldwide estate of less than $5.45 million in 2016 will not be subject to US estate tax. This holds true regardless of what portion of that estate is made up of US assets. This statement is true because of the availability of the Unified Credit to Canadians under the Tax Treaty. Since we keep referencing the BDO article, let's use the exact same computation format they used in their example but apply it to an estate under the exempt limit (so we'll use 2015 amounts):

Scenario: I have a $5,000,000 worldwide estate, $3,000,000 of it are US assets. 

Net US Estate tax calculated as follows on $3M US assets:

Estate Tax on first $1,000,000 = $345,800
Estate Tax on balance (40%) = $800,000
Total before Unified Credit = $1,145,800 (ouch!)

Less: pro-rated Unified Credit:
$3M / $5M x 2,117,800 = $1,270,680

In this case, the credit available is larger than the US estate tax otherwise payable and wipes it out completely.


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## humble_pie (Jun 7, 2009)

Nerd Investor said:


> There certainly seems to be a lot of confusion and back and forth in this thread. Let me re-attempt to clarify ... In thiis case, the credit available is larger than the US estate tax otherwise payable and wipes it out completely.




nerd, what you are showing is one extremely simple example - albeit with big numbers - & i am sorry to see that you are using this solitary illustration to try to show canadians that their sub-5.4M estates will be harmlessly exempt from new US alien NR estate taxes.

what is irresponsible imho is simplistically advising canadians that they are entitled to the $5.4M exemption for US taxpayers, therefore their estates cannot be taxed unless over this threshhold. For example, i find the pwc one-pager cited upthread to be irresponsibly over-simplified.

many - surprisingly very many - canadians will have complicating factors such as US vacation properties (the calculations for US real estate are different) or a US spouse or US dual citizenship or a US business or a US situs job or they could, in the end, be considered to be domiciled in the US of A. 

having an american spouse automatically complicates the estate picture (nerd have you any idea how many canadians are married to americans? there's a tax lawyer on my street whose entire practice is devoted to the taxation of american spouses married to canadian professionals.)

the above is why i believe a middle-of-the-road approach is far more useful than a high-handed dismissal of looming US alien NR estate tax as being 100% non-applicable unless the estate surpasses the $5.4M threshhold.

a middle-of-the-road approach would suggest saving a few key documents such as the BDO text. It would suggest keeping oneself as well informed as possible. It would suggest thoughtfully reviewing one's own situation, possibly soliciting an opinion from one's own CA.

a middle-of-the-road approach would include keeping an eye on the actual cases of US alien NR estate taxation which will surely begin to appear in the media, once the IRS gets the new operation going. It would include having an open mind.

a middle-of-the-road approach would suggest ignoring non-CA hotheads who snap out an irresponsible opinion that all canadians will have the same $5.4M exemption as US taxpayers & this will definitely generate offsetting tax credits for all canadians under 5.4M, end of story, period.

the last word for the time being should be Spudd's, imho. Preparing & filing that IRS foreign estate tax return is going to cost big bucks & it's going to cost extra delays. It will be a total PITA.


.


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## My Own Advisor (Sep 24, 2012)

Nerd Investor said:


> To clarify a bit:
> 
> The $60,000 threshold still applies. If you are below $60,000 of US situs assets you won't have to file at all.
> The requirement involves filing a US estate tax return, not a US income tax return.
> ...


Those are the operative words!

If you are _below $60,000_ of US situs assets you won't have to file at all, regardless if you own US stocks or US property.

Now, if your worldwide assets are *below* US$5.45 Million _you should not _incur any estate tax.

Both rules need to apply related to estate tax. 

The solution? 

1) Get wealthy but not rich, although I think any senior with >$5 M is rich.

2) Move away in your old age from U.S. stocks or U.S.-listed ETFs to Canadian-listed ETFs holding U.S. stocks. Besides, you can't take it with you!


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## humble_pie (Jun 7, 2009)

My Own Advisor said:


> Now, if your worldwide assets are *below* US$5.45 Million _you should not _incur any estate tax.



i give up. It's hopeless. Cmffers _want_ to believe - evidently cmffers _need_ to believe - that newish US alien NR estate taxation is never going to affect them .each:

there are millions of canadians who are going to be exceptions to the rule. I've mentioned some complicating factors that i can think of offhand - canadians with american spouses, with dual citizenship, with US vacation properties or US businesses or US situs jobs or (blanket category) US domiciliation regardless of residence. There are undoubtedly other exceptions.

me i believe it's enough to keep an open mind & keep oneself informed. Actual cases of washington alien NR estate taxation are going to be reported in the media; these will help to shine more light on the issue. Hothead opinions from non-CAs with practices focused on cross-border taxation are probably not worth a tinker's tit at this point in time, imho.

.


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## Nerd Investor (Nov 3, 2015)

humble_pie said:


> nerd, what you are showing is one extremely simple example - albeit with big numbers - & i am sorry to see that you are using this solitary illustration to try to show canadians that their sub-5.4M estates will be harmlessly exempt from new US alien NR estate taxes.
> 
> what is irresponsible imho is simplistically advising canadians that they are entitled to the $5.4M exemption for US taxpayers, therefore their estates cannot be taxed unless over this threshhold. For example, i find the pwc one-pager cited upthread to be irresponsibly over-simplified.
> 
> ...


I picked an example to show the mechanics of the credit. I'm not sure exactly how many Canadians have US spouses, but I know I have dealt with quite a few living relatively close to a border. Yes, having a US citizen spouse complicates the estate tax picture for high net worth Canadians as you must consider the estate implications of the surviving US citizen spouse. What can require even more forward thinking is leaving a large estate to a US citizen/resident child who may have significant assets of their own. US persons (citizens/residents) have their own unique set of planning issues and anyone in that situation living in Canada should be dealing with a cross-border specialized accountant annually. 

Having said that, the discussion in this thread as I understood it, was centered on Canadians (non-US persons) owning US property and the US estate tax implications. And the facts as they currently stand are that Canadians benefit from the same Unified Credit as US citizens, applied pro-rata based on their worldwide estate. A _worldwide estate_ for a Canadian that is under the exempt amount of $5.45M should not be subject to any _US estate tax_. Now, could that exemption change? Absolutely. Estate tax has been a very political thing, and the exemption could actually change significantly one way or the other depending on this upcoming federal election. So no you shouldn't take that number as gospel and bury your head for the next few decades. You should also make sure you're not forgetting anything that goes into "worldwide estate" which includes things like life insurance proceeds. 

I'm not sure if I am included as one of the "non-CA hotheads" you referenced, but for what it's worth, I am a CA who worked on cross-border taxes for individuals for a few years (including a couple US Estate Tax Returns for non-residents who owned vacation property in the US). The planning I do in my current role continues to include planning around US estate tax exposure for Canadians in various situations. So I can echo your point about how important it is to deal with your own accountant who knows your specific situation. But I also don't see how pointing out the availability of the credit and the way it works for Canadians is irresponsible or wrong, particularly on a discussion board where no one is purporting to be giving out tax advice.


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## My Own Advisor (Sep 24, 2012)

HP, I was just trying to offer my take. I've mentioned in this thread (and many other threads) I'm not a tax whiz and what I write is never tax advice. I was just offering what I understood from various publications. 

If I am incorrect, happy to hear the correct and final answer for non-US citizens as this applies to Canadians.


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## Eclectic12 (Oct 20, 2010)

Nerd Investor said:


> ... I'm not sure exactly how many Canadians have US spouses, but I know I have dealt with quite a few living relatively close to a border ...


I'm not sure why being close to the border matters as I've seen estimates of between 75% to 90% of Canadians live within 100 miles of the US border.

Not that this anecdote tells us much but I can think of three co-workers on my floor at work with US citizen spouses - just from discussions of FATCA. 




Nerd Investor said:


> ... Having said that, the discussion in this thread as I understood it, was centered on Canadians (non-US persons) ...


There were articles about FATCA early on reporting that something like 300K or so were reporting themselves as "US persons" where the US gov't figured it was more like 1 million.




Nerd Investor said:


> ... And the facts as they currently stand are that Canadians benefit from the same Unified Credit as US citizens, applied pro-rata based on their worldwide estate. A _worldwide estate_ for a Canadian that is under the exempt amount of $5.45M should not be subject to any _US estate tax_ ...


So I take it that if theoretically, our fictional Canadian had $5.45M that was all US assets that counted - the unified credit would take care of it?
... just curious.


Interestingly ... Tax Tips says:


> ... if the deceased {Canadian} 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.


http://www.taxtips.ca/personaltax/usestatetax.htm

They also have a table that suggests a $7M estate with $1M being US assets is a level where the prorated Unified Credit would no longer be sufficient to wipe out the US estate tax.


Cheers


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## Nerd Investor (Nov 3, 2015)

Eclectic12 said:


> I'm not sure why being close to the border matters as I've seen estimates of between 75% to 90% of Canadians live within 100 miles of the US border.
> 
> Not that this anecdote tells us much but I can think of three co-workers on my floor at work with US citizen spouses - just from discussions of FATCA.
> 
> ...


Theoretically, yes. If their worldwide estate was calculated correctly and it was $5.45M and all of it were US assets their estate tax would be exactly equal to the unified credit and be nil. 

For the tax tips thing: Due to the mechanics of the way the credit works and the way the estate tax is calculated, it is possible to be over the worldwide exemption threshhold and still get enough credit to wipe out the estate tax if the amount of US assets you have are small enough. This is because you benefit disproportionately from the use of the graduated rates on the first $1M of US assets compared to what is included in the Unified Credit. This is very situation specific though, you really have to run through the numbers to know if it would work out or not.


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