It comes as a surprise to many Canadians to learn their estate may be subject to U.S. estate tax. Indeed, the U.S. estate tax regime is broad and complex and misunderstood by many Canadians. This article will provide a summary overview of its application to Canadian and how to minimize its implications.

U.S. Estate Tax Regime in General

All U.S. persons (U.S. citizen, U.S. resident or green card holder) are subject to the U.S. estate tax regime; a tax levied on the value of all property owned at the time of death. However, every U.S. person may claim a basic exclusion amount and a unified tax credit.

For 2025, the U.S. basic exclusion amount is $13.99MM.[1] Essentially, if the fair market value of their worldwide estate is below $13.99MM, no estate tax is payable.

Limited Exemption & the Canada-U.S. Tax Treaty

The U.S. estate tax rules provide a limited exemption of $60,000 to all non-resident aliens who hold U.S. situs assets at the time of their death. Any value exceeding this limited exemption threshold is subject to the U.S. estate tax, levied at marginal tax rates that start at 18% and that can reach up to 40%, on their U.S. situs assets.

What? I was told that I’m exempt. The saving grace to Canadians is the Canada-U.S. Tax Treaty (“Treaty“) under which Article XXIX B provides a pro rata share of the U.S. unified credit amount against any U.S. estate taxes payable by a Canadian estate.

In 2025, a Canadian estate can claim the unified tax credit equal to the greater of:

 

$13,000 Or $5,541,800[2]  x  (Value of U.S. situs assets / Value of worldwide estate)

hereinafter, (“Treaty Exemption“).

Essentially, if the fair market value of the estate is less than the U.S. basic exclusion amount of $13.99MM, the Canadian estate will likely be exempt from paying U.S. estate tax, provided U.S. filing requirements are met (see “File it or Lose It…”, below).

What Constitutes U.S. situs Assets

The following assets are likely considered U.S. situs assets:

• U.S. real estate (e.g., vacation home in Florida),
• U.S. tangible property,
• Safety deposit boxes located in the U.S.,
• U.S. brokerage accounts,
• U. S. publicly traded securities (even if held in a Canadian registered account or TFSA),
• Shares in a private U.S. corporation,
• Debts owed by a U.S. debtor,
• Shares in a U.S. registered fund/mutual fund,
• Interest in a U.S. partnership.[3]

Holding any of the above U.S. situs assets at the time of death can subject a Canadian estate to U.S. estate tax.

File it or Lose It…

To rely on the full Treaty Exemption, the executor must file a U.S. estate tax return[4] within 9 months from the date of death. An automatic six-month extension of time will be granted if Form 4768 is filed on time.

If the U.S. estate tax return is never filed, then the estate never claimed the Treaty Exemption therefore, only the limited exemption of $60,000 is available.  The requirement of filing the estate return is overlooked or misunderstood by many executors and advisors.  The Internal Revenue Service (IRS) reserves the right to deny the Treaty Exemption if the return was never filed (or filed late) which could result in the estate having to pay U.S. estate tax even though it was exempt.

For an executor, overlooking the filing of the U.S. estate tax return can translate in a personal liability to the executor; a costly oversight.

Disclosing their Worldwide Estate

Another surprise to Canadians is the requirement of disclosing the fair market value[5] of their worldwide assets when filing the U.S. estate tax return. Although the U.S. estate tax is only applicable to their U.S. situs assets, the fair market value of their worldwide estate must be disclosed in order to claim their Treaty Exemption.

Failure to disclose full worldwide value can be deemed having submitted an incomplete U.S. estate tax return thus jeopardizing the availability of the Treaty Exemption.

Noteworthy: Proceeds of insurance is likely to be included when establishing the worldwide value of the estate. This is often misunderstood and may “bump” the value of the estate over the Treaty Exemption even if for Canadian estate purposes, the insurance proceeds would likely not form part of the estate. That is a key distinction that must be recognized.

Conclusion

It is true that Canadians are afforded a considerable U.S. estate tax exemption under the Treaty; however, proper filings and disclosures are necessary to take advantage of this exemption. Advisors must inform clients on their potential exposure to U.S. estate tax, as well as the requirements to claim the Treaty Exemption.

 

[1] In 2026, the basic exclusion amount will be $15MMas a result of the “One Big Beautiful Bill.”

[2] $5,541,800 represents the equivalent of the U.S. estate tax liability on $13,990,000 of assets. This amount changes annually, therefore, needs to be adjusted accordingly.

[3] For determining whether the U.S. partnership is a U.S. situs asset, a more in-depth analysis is required.

[4] Form 706-NA is the estate tax return to be filed for the non-resident decedent.

[5] The fair market value under U.S. estate tax regime may differ from the fair market value under provincial estate law. One should seek professional advice when determining fair market value for U.S. estate tax purposes.