This article is one in a series of related topics on Canadians owning & renting property in the United States. Prior to implementing any strategies contained in the articles, individuals should consult with a qualified tax advisor, accountant, legal professional or other professional to discuss implications specific to their situation.
If you die owning U.S. assets such as stock of a U.S. corporation or U.S. real estate property, then you may be subject to U.S. estate tax on the fair market value of your “U.S. situs assets.”
Starting in 2002, U.S. estate tax rates were gradually lowered and, at the same time, the U.S. estate tax exemption gradually increased. Without new legislation, 2010 was to be the year individuals were free of U.S. estate tax. However, on December 17, 2010, U.S. lawmakers signed into law changes to retroactively implement the U.S. estate tax to January 1, 2010 for those who died in calendar 2010 and introduced new limits that apply until 2012. For tax years 2010 to 2012, the new legislation set the top U.S. estate tax rate at 35% (down from the 2009 maximum rate of 45%), with an exemption amount of US$5 million (up from the US$3.5 million exemption for 2009).
These changes may reduce or eliminate your exposure to U.S. estate tax since your exemption will now be a pro-rated percentage of a much higher exemption amount. However, Canadians with significant assets should still manage their U.S. estate tax exposure since these changes only apply to December 31, 2012. After 2012, these changes will expire. Unless further legislation is enacted, in 2013, the top U.S. estate tax rate will increase to 55% and the exemption amount will be reduced to only US$1 million.
Even if your worldwide estate falls below the exemption threshold such that you avoid exposure to U.S. estate taxes, your estate representative will still be required to file a U.S. tax return on behalf of your estate if the value of your U.S. property is at least US$60,000.