Crossborder estate tax- US estate, Canadian resident
Moderator: Mark T Serbinski CA CPA
Crossborder estate tax- US estate, Canadian resident
I'm a US citizen, living in Canada as a PR for 15 years. A relative recently left me a portion of his estate. In all, my share will be about $40,000, once the property is sold. This is far below the threshold for US estate taxes. We file US taxes but never owe any, due to tax treaties. But how the US inheritance will affect our Canadian taxes is unclear to me. Will it just count as ordinary income, for the monetary portion? I presume I would not be taxed on physical items that are not sold. If the Estate purchase items or, say, travel tickets before closing, does that change anything?
US Citizen
Canadian PR since 2000
Canadian PR since 2000
Inheritances are NEVER taxable in the hands on the receiver. Neither country has any form of inheritance tax.
In US, estate tax is paid by the estate of the person who dies, no the inheritor, regardless nationality, of the amount or the relationship to the deceased.
In Canada, all taxes are taken care of on the final return of the deceased, and, again, no tax is owed by the inheritor.
The only reporting that would ever need handling by the inheritor is a Form 3520 in US, if the inheritance was more than $100,000 and the deceased was a foreign person.
Of course, once the money is considered yours, then any income that arises afterwards is taxable in your name.
But from what you describe, the sale of the property will incur no income for you.
In US, estate tax is paid by the estate of the person who dies, no the inheritor, regardless nationality, of the amount or the relationship to the deceased.
In Canada, all taxes are taken care of on the final return of the deceased, and, again, no tax is owed by the inheritor.
The only reporting that would ever need handling by the inheritor is a Form 3520 in US, if the inheritance was more than $100,000 and the deceased was a foreign person.
Of course, once the money is considered yours, then any income that arises afterwards is taxable in your name.
But from what you describe, the sale of the property will incur no income for you.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing 
... and just so we are clear, you owe no tax in the US every year, not because of tax treaties, but simply because US allows its foreign resident citizens to use whatever foreign taxes they pay as credits, to exempt certain foreign income, and use whatever other regular deductions, exemptions, and credits to lower their US tax liability to zero.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Inheritances are NEVER taxable in the hands on the receiver. Neither country has any form of inheritance tax.
In US, estate tax is paid by the estate of the person who dies, no the inheritor, regardless nationality, of the amount or the relationship to the deceased.
In Canada, all taxes are taken care of on the final return of the deceased, and, again, no tax is owed by the inheritor.
The only reporting that would ever need handling by the inheritor is a Form 3520 in US, if the inheritance was more than $100,000 and the deceased was a foreign person.
Of course, once the money is considered yours, then any income that arises afterwards is taxable in your name.
But from what you describe, the sale of the property will incur no income for you.
In US, estate tax is paid by the estate of the person who dies, no the inheritor, regardless nationality, of the amount or the relationship to the deceased.
In Canada, all taxes are taken care of on the final return of the deceased, and, again, no tax is owed by the inheritor.
The only reporting that would ever need handling by the inheritor is a Form 3520 in US, if the inheritance was more than $100,000 and the deceased was a foreign person.
Of course, once the money is considered yours, then any income that arises afterwards is taxable in your name.
But from what you describe, the sale of the property will incur no income for you.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
Thanks Nelsona.
Yes, I understand about the tax credits - I guess calling it tax treaties might be poor wording, but that was what I was referring to.
There's still a confusion to me about the inheritance from a US estate though. I had read that in Canada it's expected that the estate pays all the taxes before disbursing, but I am quite sure the Executor for the US estate has no knowledge or intent to file any Canadian taxes. Certainly typical US Executors wouldn't know to do that. Does Canada just allow for foreign estates to follow their local rules? From what you wrote it looks like Canada could never receive any tax gain from a Canadian inheriting money from a non-Canadian?
I'm very grateful for the answer! Is there a link to the "official" regulations on this (from the Canadian side)? I'd be interested to learn more!
Thank you!
Yes, I understand about the tax credits - I guess calling it tax treaties might be poor wording, but that was what I was referring to.
There's still a confusion to me about the inheritance from a US estate though. I had read that in Canada it's expected that the estate pays all the taxes before disbursing, but I am quite sure the Executor for the US estate has no knowledge or intent to file any Canadian taxes. Certainly typical US Executors wouldn't know to do that. Does Canada just allow for foreign estates to follow their local rules? From what you wrote it looks like Canada could never receive any tax gain from a Canadian inheriting money from a non-Canadian?
I'm very grateful for the answer! Is there a link to the "official" regulations on this (from the Canadian side)? I'd be interested to learn more!
Thank you!
US Citizen
Canadian PR since 2000
Canadian PR since 2000
This is a US estate,; so there is no Cdn reporting involved.
I was merely pointing out that you, as the inheritor, have nothing to report on your taxes when you inherit something. In US or Canada.
As to a link, look at the General CRA Tax return guide . There is NO line that lists inheritance income, is there? that is because it isn't income. Not much more to learn about something that doesn't exist.
Why would Canada deserve or require that a Cdn receiving an inheritance (from US, Canada, or Mars) owe them money? Even the US, which has estate tax (but not inheritance tax), doesn't claim this.
The estate or deceased always pays any tax owing.
I was merely pointing out that you, as the inheritor, have nothing to report on your taxes when you inherit something. In US or Canada.
As to a link, look at the General CRA Tax return guide . There is NO line that lists inheritance income, is there? that is because it isn't income. Not much more to learn about something that doesn't exist.
Why would Canada deserve or require that a Cdn receiving an inheritance (from US, Canada, or Mars) owe them money? Even the US, which has estate tax (but not inheritance tax), doesn't claim this.
The estate or deceased always pays any tax owing.
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing
RE: Inheritances are NEVER taxable in the hands on the receiver. Neither country has any form of inheritance tax.
The US taxes the inheritors at a 40% tax rate if the deceased US person incorrectly renounced US citizenship before death and bequeathed to USC children.
Also note that in some states, estate tax is imposed on the personal representatives of the dead person while an inheritance tax is imposed on the people benefiting from estates gained.
These states include:
• New Jersey
• Nebraska
• Tennessee
• Pennsylvania
• South Carolina
• New Mexico
• South Dakota
The states where inheritance tax is the same as estate tax are as follows:
• Washington
• Wisconsin
• Virginia
• Missouri
• West Virginia
• Wyoming
The US taxes the inheritors at a 40% tax rate if the deceased US person incorrectly renounced US citizenship before death and bequeathed to USC children.
Also note that in some states, estate tax is imposed on the personal representatives of the dead person while an inheritance tax is imposed on the people benefiting from estates gained.
These states include:
• New Jersey
• Nebraska
• Tennessee
• Pennsylvania
• South Carolina
• New Mexico
• South Dakota
The states where inheritance tax is the same as estate tax are as follows:
• Washington
• Wisconsin
• Virginia
• Missouri
• West Virginia
• Wyoming
Thanks for the clarification about section 2801 for expats.
Our poster is a Cdn resident, so the states you mention don't come into play. As to estate tax, our poster doesn't have to worry about that, the estate does, as already pointed out.
Btw, some of the states you mentioned no longer have inheritance/estate tax. Missouri, for example, got rid of these years ago, and I suspect many of the others have as well, so your info might be a little out-dated.
Right now, only states have INHERITANCE tax:
• Iowa
• Kentucky
• Nebraska
• Pennsylvania
• Tennessee (phased out this year)
• Maryland
• New Jersey
Our poster is a Cdn resident, so the states you mention don't come into play. As to estate tax, our poster doesn't have to worry about that, the estate does, as already pointed out.
Btw, some of the states you mentioned no longer have inheritance/estate tax. Missouri, for example, got rid of these years ago, and I suspect many of the others have as well, so your info might be a little out-dated.
Right now, only states have INHERITANCE tax:
• Iowa
• Kentucky
• Nebraska
• Pennsylvania
• Tennessee (phased out this year)
• Maryland
• New Jersey
nelsona non grata. Non pro. Please Search previous posts, no situation is unique as you might think. Happy Browsing