Many Canadian citizens are unaware that their U.S. situs assets may be subject to U.S estate tax—even stocks in U.S. corporations held within a Canadian RRSP. In some circumstances, Canadian estate executors need to file a U.S. Tax Return (Form 706NA) and the estate may even have a U.S. estate tax liability.
What is a U.S. situs asset?
Basically, a US situs asset is any asset that is considered to be located in the United States, including:
- Real estate located in the United States
- Shares of U.S. publicly traded companies and U.S. private companies
- Cash accounts with U.S. brokerage firms
- Tangible personal property located in the U.S. with some degree of permanence
- Certain debts owing by a U.S. debtor
This can create a sizable tax bill for the estate of a Canadian resident who owns U.S. real estate or holds a large U.S. stock portfolio. Unfortunately, RRSPs offer no protection from U.S. estate tax—as an RRSP is deregistered at death, and estate tax applies to the value of an estate immediately after death.
When are Canadian-owned U.S. situs assets subject to U.S. estate tax?
Executors of Canadian estates must file a U.S. estate tax return, Form 706NA, if the fair market value of the deceased’s U.S. situs assets exceeds US$60,000 at death.
The Canada-U.S. Tax Treaty may exempt Canadians from filing Form 706NA even when U.S. situs assets are greater than $60,000 if the total value of the estate is less than US$1.2M. In this case, only U.S. real estate (or business assets forming part of a U.S. Permanent Establishment of the deceased – i.e. part of an unincorporated business) is subject to U.S. estate tax, and any U.S. stocks or other assets are not considered U.S. situs assets.
Unfortunately, the total value of an estate includes the principal residence owned by the deceased, as well as the proceeds of any insurance policies owned by the deceased, so this exception may be of limited application.
Since U.S. estate tax can be as much as 40%of the value of the U.S. situs assets, it’s imperative that Canadians are aware of these assets and apply estate planning tools to eliminate or diminish any U.S. estate tax liability.
The estate planning specialists at S+C Partners would be happy to answer any questions you have regarding U.S. situs assets.