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.
Under the Canada-U.S. Tax Treaty, Canada now permits U.S. estate tax to be deducted from Canadian tax otherwise payable at death in certain circumstances. However, this relief may be limited since it is only available to U.S. source income that is subject to U.S. estate tax. Since U.S. estate tax is based on gross value and Canadian deemed disposition tax at death is imposed effectively as a capital gains tax (on appreciation), there may be no credit available if there is no appreciation in the real estate property.
Since foreign tax credits are generally available only when the incidence of U.S. estate tax and Canadian income tax occur during the same year, the difference between the Canadian and U.S. spousal rollover rules means that steps should be taken to ensure such matching occurs. The appropriate elections should be made by the estate executor to ensure that U.S. estate and Canadian taxes come due in the same year for foreign tax credit purposes.
It is important to ensure that you have a valid Will that properly addresses your wishes with respect to your condo or other real estate property in the U.S. Though a Canadian Will may be adequate to address your U.S. property, complexities may arise due to potential clashes between the differing Canadian and U.S. succession laws. To minimize this risk, you may wish to consider executing a separate Will (drafted in the U.S. state where the U.S. property is located) to deal specifically with your real estate property and other assets outside Canada. When executing a separate U.S. Will, it is important to ensure that it does not cause the revoking of your Canadian Will.
A properly drafted power of attorney that addresses your U.S. property will ensure that it continues to be managed in accordance with your wishes (particularly important in the case of a rental property) in the event of your incapacity/disability. Under common law, the law of the jurisdiction in which the power of attorney is executed usually governs the relationship between a donor and the attorney. Therefore, it is important to execute a separate power of attorney in the U.S. state where your real estate property and other U.S. assets are located.