US Estate Tax

November 9, 2013 | Posted in Personal Tax for Canadians | By

You may find this article relevant to your estate planning if you are:

  1. a Canadian resident but not a US citizen and the fair market value of your US-situs assets exceeds US$60,000; or
  2. a Canadian resident and a US citizen and the fair market value of your worldwide assets exceeds the “unified credit exemption” amount in effect on the date of death (US$5.25 million for 2013 which is indexed for inflation).

For simplicity, the following information is complied based on the premise that no substantial lifetime gifts of US property was made by the deceased Canadian residents.

REQUIREMENT TO FILE US ESTATE TAX RETURN

If a deceased Canadian resident owned assets at death as described in (1) or (2) above, the executor of the estate must file a US estate tax return regardless of whether the deceased Canadian resident had US estate tax payable or not as discussed below.

COMPUTATION OF THE US FEDERAL ESTATE TAX

Conceptually, the tax on the taxable estate up to US$1 million is based on progressive rates ranged from 18% to 39%.  The total estate tax payable on the first US$1 million of taxable estate is US$345,800.  The top marginal rate for taxable estate in excess of US$1 million is 40%.  A unified credit is then deducted from the gross estate tax to arrive at the estate tax payable.  The unified credit for US citizen or residents for 2013 is US$2045,800, which is equal to the tax on a US$5.25 million estate (i.e., the “unified credit exemption”).  The unified credit available to Canadian residents who are non-US citizen is prorated based on the ratio of US-situs assets to the total worldwide estate. Accordingly,

  • deceased Canadian residents with worldwide taxable estate not exceeding US$5.25 million should have no US estate tax payable for 2013.  Nevertheless, the estates may have a requirement to file a US tax return if the deceased Canadian residents were non-US citizen with US-situs assets exceeding US$60,000;
  • for deceased Canadian residents who are US citizen with worldwide taxable estate exceeding US$5.25 million, the US estate tax payable is 40% of the portion of the taxable estate in excess of US$5.25 million; and
  • for deceased Canadian residents who are non-US citizen with worldwide taxable estate exceeding US$5.25 million, the US estate tax payable is computed as illustrate in the example below.

Example

  • US$1.5 million of US situs assets —-> Gross estate tax = US$545,800
  • Total worldwide estate valued at US$10 million
  • Unified credit for 2013 = US$2,045,800 x 1,500,000 / 10,000,000 = US$306,870
  • Estate tax payable for 2013 = US$545,800 – US$306,870 = 238,930

We Can Help

We are a Toronto Chartered Accountant firm with 20 years of specialized experience in Canadian domestic and international taxation.  We can assist with

  • Cross border taxation;
  • Business and succession planning;
  • Canadian personal and corporate tax returns;
  • Corporate tax planning and reorganization;
  • Retirement planning;
  • Estate planning and inheritance tax advice; and
  • Tax audit dispute and resolution.

Contact us to schedule an appointment.

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The article is not intended to provide advice, recommendations or offers to buy or sell any product or service. The information provided in this article is compiled from our own research and is based on assumptions that we believe to be reasonable and accurate at the time the article was written, but is subject to change without notice.  Readers are encouraged to contact us for further details or analysis relevant to their particular circumstances. Readers should not rely on this article without seeking professional advice on any Canadian tax matters.

Claudia Ku is a Chartered Accountant and the principal of a boutique full service accounting firm based in Toronto. As a tax specialist for over 20 years, Claudia provides valuable tax services to help her clients to minimize taxes and maximize net worth. In addition, Claudia provides accounting and business consulting services to help business owners to grow their businesses. If you find this information useful, kindly +1 and follow Claudia Ku on Google Plus to share the information with your circle.