Cross-Border Inheritance Tax Between Canada and the US: What You Need to Know

Getting assets from the US to Canada, or the other way around, can feel exciting but tricky. You might inherit a condo in Seattle or be a US citizen in Canada planning what to leave your heirs. Either way, US and Canada inheritance tax rules can catch you off guard if you’re not ready.

Here’s a quick look:

Quick Takeaways

• U.S. citizens and dual residents in Canada must file U.S. taxes, even if they don’t live in the U.S.
• You can avoid double taxation using the Foreign Earned Income Exclusion or Foreign Tax Credit.
• Foreign accounts over $10,000 require additional reporting (FBAR & Form 8938).

At SAL Accounting, we make cross-border tax accounting between Canada and the US easy every day. This guide explains US Canada inheritance tax rules, what you owe for inherited foreign assets in Canada, and ways to cut taxes. Whether it’s real estate, stocks, or cash from abroad, we’ve got clear answers and practical tips to help you keep more of your inheritance.

Why Cross-Border Estate Tax Between Canada and US Matters

Picture inheriting a Florida beach house worth $600,000 from a US relative. It’s a great gift, but then you wonder: Do Canadians pay US estate tax? What about taxes in Canada? If you don’t know the rules, you could lose a big chunk to taxes you didn’t plan for.

This is key for Canadians getting US assets and US folks in Canada handling estates across the border. A mistake can cost you money while understanding the setup saves you cash. We’ll start with how taxes work in each country and guide you through what applies to you, step by step.

➜ Read more: “How to File Your U.S. Tax Return While Living in Canada”

How US Canada Inheritance Tax Rules Work

Let’s see how Canada and the US handle inheritance and estate taxes. This lays the groundwork for everything else.

Canada—No Tax Just for Taking It

Canada keeps it simple: there’s no inheritance tax. You don’t pay anything just for getting an inheritance, whether it’s from Canada or abroad, per the CRA’s tax rules. But there’s a catch.

The Capital Gains Part

When someone dies, Canada acts like they sold their assets at today’s price, called a deemed disposition by the CRA. If the value went up since they bought it, the estate pays capital gains tax on inheritance Canada before you take it. 

For example, if someone bought a cabin for $100,000 and it’s worth $300,000 when they pass away, the estate pays tax on the $200,000 gain—about $50,000 at a 50% inclusion rate and 50% tax bracket. The heir get the cabin tax-free after that.

What About Money It Makes?

If the cabin earns money, like rent, the new owner reports that on their Canadian tax return. The inheritance itself stays tax-free, but income from it gets taxed.

Filing Details

The estate files this tax by April 30 of the next year (or October 30 for a graduated rate estate), per CRA deadlines. Late filing can add 5% penalties plus 1% monthly interest, so it’s worth ensuring it’s done right.

The US—Estate Tax Rules

The US uses estate tax, explained by the IRS. When a US citizen dies, their estate pays tax if it’s over $13.61 million in 2025—a high bar.

Big Estates Pay

Smaller estates don’t owe anything. If the estate’s worth $5 million, it pays zero since it’s under the IRS’s 2025 limit. Rates start at 18% and hit 40% above $1 million over the limit.

Canadians with US Assets

For Canadian non-residents, the IRS applies estate tax on US assets (like a house or stocks):

• Basic exemption is $60,000
• Rates reach 40% on anything above this limit

For example, a $500,000 condo in Los Angeles could mean a $176,000 tax bill (40% tax on $440,000) without treaty help. The Canada-US Tax Treaty can lower this; we’ll explore that next.

Tax Rate Breakdown

The tax rate starts small at 18% for amounts over $60,000, then increases to 40% for larger estates over $1 million. For example, a $1.06 million estate could face about $404,000 in tax without treaty relief.

➜ Read more: Corporate Tax Deadlines in 2025

Do Canadians Pay US Estate Tax? When will It Happen?

Let’s tackle a big question: Do Canadians pay US estate tax when they inherit from the US or own US assets? 

Here’s the breakdown.

When Estate Tax Comes Up

US estate tax pops up in two ways:

1. A Canadian dies owning US assets, like real estate or stocks, and their estate might owe tax.
2. A US person’s estate pays tax before you inherit, but you don’t pay it as a Canadian.

If a US estate worth $8 million leaves you $400,000 in cash, no estate tax applies since it’s under $13.61 million, per IRS estate tax rules.

Limits and Treaty Help

The basic limit for Canadians with US assets is $60,000, but the Canada-US Tax Treaty helps (outlined by Finance Canada). Your limit is based on what portion of your total estate is in US assets. For example, with a $2 million estate where $500,000 is US property (25%), you’d get a $3.4 million limit—meaning no tax owed.

Pro Tip: File IRS Form 706-NA within 9 months of death (or 15 with Form 4768) to claim this bigger limit. It’s your key to skipping that tax.

IRS Form 706-NA lets Canadians use treaty limits for US estate tax. Keep papers like property deeds or stock records to prove your numbers—the IRS needs solid evidence.

Case Study: Margaret’s Arizona Condo Jam

The Problem: Margaret, a Vancouver retiree who loved her Arizona sun, had a $700,000 Scottsdale condo. When she passed, she left it to her niece Lisa, a Burnaby mom wanting to help her kid’s future. Boom—they got hit with a $256,000 US estate tax bill outta nowhere, and Lisa was freaking out about losing half her gift.

What We Did: At SAL Accounting, I’ve seen this tons—in my experience, retirees miss this stuff. I grabbed coffee with Lisa, checked Margaret’s $1.5 million estate, and we filed Form 706-NA. The Canada-US Tax Treaty gave us a $4 million limit; plenty for the condo. Tip: file quick to dodge interest!

The Result: No tax, saved $256,000! Lisa sold it easy, happy to keep Margaret’s gift for her son’s school.

Tax on Receiving an Inheritance From the US

What’s the deal with tax on receiving an inheritance from US? Canada doesn’t tax it when you get it, but the asset type and what you do with it matter. Here’s how it works.

Cash—Really Easy

Cash is simple. The US estate might pay tax first, reducing your share. In Canada, you don’t owe anything when you get it, per CRA income rules. If it’s over $100,000 CAD and stays abroad, file CRA Form T1135 by April 30.

You get $120,000 USD after estate taxes, no Canadian tax applies.

Real Estate—Tax Later

US real estate has steps. The estate might owe tax at death; check IRS estate tax rules. You take it tax-free in Canada, but selling it later means Canadian capital gains tax, based on the stepped-up basis (value when inherited). Need help with real estate tax? Our real estate tax accountants can guide you.

A $400,000 Texas condo becomes yours—selling it later for $480,000 means a $20,000 tax at 50% inclusion and 50% rate.

⭐ Pro Tip: Get a value check at inheritance—it sets your starting price and avoids tax mix-ups.

Stocks—Dividends and Gains

US stocks come with extras. Dividends face a 15% US tax (treaty rate—see IRS treaty info), and you claim a credit in Canada. Selling triggers Canadian tax on gains from the inheritance price. For expert help, check our cross-border accounting services.

You inherit $150,000 in Amazon stock with $2,000 yearly dividends—US takes $300.

Retirement Accounts—Tax in Two Places

A 401(k) or IRA is harder. The US taxes withdrawals at 10-37%, per IRS retirement rules. Canada taxes them too, with a credit for US tax.

A $60,000 IRA withdrawal of $30,000 costs $3,000 US tax and $6,000 net in Canada after credit.

Comparing Asset Types

Here’s a table to show how assets get taxed:

Asset Type	US Tax	Canada Tax
Cash	Estate tax (if it applies)	None (report if over $100K CAD)
Real Estate	Estate tax (if it applies)	Capital gains on sale
Stocks	15% on dividends	Capital gains on sale
Retirement Accts	10-37% on withdrawals	Taxed, with credit for US tax

Canada vs. US Inheritance Tax Rules Side by Side

Here’s a quick look at cross-border estate tax between Canada and US:

How to Lower Foreign Inheritance Tax in Canada and the US

You don’t have to let foreign inheritance tax in Canada or the US take much. Here’s how to keep more, with deeper options.

Use the Canada-US Tax Treaty

The treaty, per Finance Canada, cuts US dividend tax to 15%, raises your estate tax limit, and stops double taxation. A $1 million estate with $250,000 in US stocks saves $76,000 with it. File IRS Form 706-NA within 9 months, or 15 with Form 4768 to claim the bigger limit and dodge tax.

➜ Read more: “A Guide to Withholding Taxes Under the U.S.-Canada Tax Treaty”

Set Up a Trust

A trust skips US estate tax by keeping assets out of your estate at death, per IRS trust basics. A $700,000 US house in a trust means no tax when you inherit. A revocable trust ($1,000-$2,000 setup) lets changes, while an irrevocable one locks assets but maximizes tax savings—ask a lawyer which fits.

Give Gifts Early

The US allows $18,000 tax-free gifts per person yearly (2025), per IRS gift rules. It shrinks the estate, and Canada doesn’t tax you—$72,000 over 4 years cuts tax risk.

Use a Canadian Company

A Canadian company owning US assets avoids personal estate tax—see CRA business tax info. Your company buys a $200,000 US rental, saving personal tax at death.

File the Right Forms

Missed forms mean penalties. 

1. IRS Form 706-NA: for estate tax on US assets.
2. IRS Form 3520: for inheritances over $100,000 USD.
3. CRA Form T1135: for foreign assets over $100,000 CAD.
   

Comparing Strategies

Here’s a table to weigh your options:

Strategy	US Tax Saved	Canada Tax Saved	Complexity
Treaty	Estate tax (up to 40%)	Double taxation	Medium
Trust	Estate tax (full)	None	High
Gifting	Estate tax (partial)	None	Low
Company	Estate tax (full)	None	Medium

Case Study: Helen’s Miami Rental Mess

The Problem: Helen, a sweet Ottawa widow, got a $900,000 Miami rental from her US hubby when he passed. Outta the blue, bam—a $336,000 estate tax bill landed, and she was shook, thinking she’d lose tons of money.

What We Did: At SAL Accounting, I’ve dealt with this plenty. In my experience, people don’t plan for this. I teamed up with Helen, found a trust draft her lawyer started, and we got it locked in via court to show the IRS. Quick tip: set up trusts early, it’s a lifesaver!

The Result: Tax went poof—zero owed, saving $336,000! Helen kept the rental cash flowing, grinning ear to ear.

Common Mistakes to Avoid With Cross-Border Inheritance

Mistakes can raise your taxes or delay your inheritance. Here’s what to watch out for with easy fixes.

Forgetting Form T1135

If you inherit a big amount from abroad, like cash or property worth more than $100,000 CAD, you need to file Form T1135 yearly with the CRA. Skipping it means daily penalties that add up fast. It’s a quick step to avoid trouble.

Pro Tip: Keep a list of foreign stuff you get. It makes filing easy.

Missing Treaty Help

The Canada-US Tax Treaty cuts US estate tax, but you need Form 706-NA to use it. Without it, you face a tiny limit, and extra tax can hit hard. It’s a simple way to save big.

Guessing the Starting Price

Selling inherited stuff, like a house, means Canadian tax on the gain from its value when you got it. Guessing that value can make you overpay. A condo sale cost someone extra tax because they didn’t prove the start price.

Case Study: Sam’s Toronto Stock Mix-Up

What Happened: Sam’s a smart Toronto guy who loves tech stocks. He got $200,000 in US shares from a good friend’s estate. He didn’t know about Form T1135 and forgot to file it for two years. The CRA sent him a $5,000 penalty notice. Sam called us, scared he’d lose a big part of his inheritance over this mistake.

How I Helped: In my experience at SAL Accounting, busy people like Sam miss this form a lot. I met him, checked his papers, and used the Voluntary Disclosure Program to fix the late filings with the CRA. We added calendar alerts so he won’t forget again. My tip: a quick reminder saves you from trouble!

Outcome: We got the penalties dropped. Sam saved $5,000 with no hassle. He’s happy now, trusts us to handle his cross-border stuff, and feels safe.

Final Thoughts

Figuring out US Canada inheritance tax rules and cross-border estate tax between Canada and the US is doable. Canada skips inheritance tax, the treaty lowers US estate tax, and smart steps keep your tax on receiving an inheritance from abroad low. Your inherited foreign assets in Canada stay safe with some planning.

SAL Accounting is here to assist. Need help with forms or a trust? Contact us for a free chat—we’ll keep it basic and clear.

FAQ: Answers on US Canada Inheritance Tax Rules