Inheritance Question

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webcite_99
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Joined: Fri Feb 18, 2005 8:45 pm

Inheritance Question

Post by webcite_99 »

Scenario: Canadian resident inherits $5M worth of cash, real and investment property from a US citizen/resident. Canadian resident dies 20 years later and has invested the $5M in such a way that is is worth $10M at the time of death.

Question 1: I understand that there is no inheritance tax in Canada, so is it safe to assume that there would be no Canadian tax implication at the time of inheritance?

Question 2: What taxes, if any, apply to the $10M componant of his estate when the Canadian inheritor dies?

Thanks.
Webcite_99

Rick
Norbert Schlenker
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Post by Norbert Schlenker »

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">Scenario: Canadian resident inherits $5M worth of cash, real and investment property from a US citizen/resident. Canadian resident dies 20 years later and has invested the $5M in such a way that is is worth $10M at the time of death.

Question 1: I understand that there is no inheritance tax in Canada, so is it safe to assume that there would be no Canadian tax implication at the time of inheritance?<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Yes.

<blockquote id="quote"><font size="1" face="Verdana, Arial, Helvetica" id="quote">quote:<hr height="1" noshade id="quote">Question 2: What taxes, if any, apply to the $10M componant of his estate when the Canadian inheritor dies?<hr height="1" noshade id="quote"></font id="quote"></blockquote id="quote">

Capital gains taxes on the $5M gain. At the current 50% inclusion rate for capital gains, that means regular income tax on $2.5M. That would vary depending on province of residence at death, but figure $1-1.3M as the total liability.
nelsona
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Post by nelsona »

If the inheritor continued to hold the US real property, the gains made while they owned it would also be taxable in US by cap gains tax, and, if held 'til death, the entire value of the real property would again be subject to US estate tax (if that tax is still around by then).

<i>nelsona non grata... and non pro</i>
webcite_99
Posts: 46
Joined: Fri Feb 18, 2005 8:45 pm

Post by webcite_99 »

Thanks for the replies. I have a couple of quick follow up questions:

1) If also taxable in the US on the real property, would there be any offset for the taxes paid in Canada?

2) Assuming the Canadian resident is also a US citizen, I assume that this would subject him to US estate taxes as well (as it currently stands today)??

3) if yes to question #2, then same question as number 1 (is there any offset).

Thanks


Rick
webcite_99
Posts: 46
Joined: Fri Feb 18, 2005 8:45 pm

Post by webcite_99 »

Thanks for the replies. I have a couple of quick follow up questions:

1) If also taxable in the US on the real property, would there be any offset for the taxes paid in Canada?

2) Assuming the Canadian resident is also a US citizen, I assume that this would subject him to US estate taxes as well (as it currently stands today)??

3) if yes to question #2, then same question as number 1 (is there any offset).

Thanks


Rick
nelsona
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Post by nelsona »

1. Yes. foreign tax credit for the US taxes paid would be applied against the Cdn cap gains paid. CRA is currently allowing a 50% tax credit rather than full credit, since they say that cap gains is only included ain income at 50% rate, but that is another story.

2 and 3. Yes. Any Cdn tax paid upon death would be creditable against any estate tax, or vice versa, depending on source of income.

<i>nelsona non grata... and non pro</i>
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