Written on February 22, 2013 – 7:00 am | by Steven Frye
The American Taxpayer Relief Act includes measures to remove the significant increase in estate and gift taxes that was to occur for deceased individuals making gifts after 2012. Without this legislation, the exemption level for estate tax was to be reduced to $1,000,000 U.S. With this legislation, the exemption level will be kept at the previous level of $5,000,000 U.S. This is relief indeed. The exemption will be increased for inflation indexing to $5,250,000 in 2013.
The American Taxpayer Relief Act also reduced the significant increase in the top tax rate that was to occur in 2013. The top rate was to increase to 55% due to the expiration of certain clauses in older legislation. With this legislation, the top rate of estate and gift taxes will increase to 40% from 35% in 2012. More relief.
Now Canadians who are not US citizens will benefit from these changes indirectly. Under US tax law, US estate tax is applicable on US property owned by non-residents, and the exemption is only $60,000 US. This exemption was not altered under The American Taxpayer Relief Act. However, The Canada-US tax treaty allows Canadians to benefit to some extent from the same exemption amount that US citizens can claim. The exemption is prorated based on the ratio of the value of assets located in the USA compared with the value of the estate as a whole.
If you have property located in the USA, it would be worthwhile to revisit the potential tax liability in view of the above and don’t forget to consult your professionals when doing so.
Thanks for reading.