If You Get An Inheritance From The U.S.

by Tax Guy - Burlington Accountant on March 17, 2010 Print This Post Print This Post

I received an e-mail recently from a U.S. citizen with landed immigrant status in Canada asking about the tax implications of an inheritance to be received after his parents (who are U.S. citizens living in the U.S.) passed away.

In the U.S. there is an estate tax that is charged to the estate of the deceased by the U.S. government. There may also be additional state estate taxes charged. In Canada, the deceased is considered to have sold their assets at fair market value and must pay tax on any capital gains as well as income earned to the date of death. Neither Canada, nor the U.S. charge taxes in the inheritance (except a few U.S. states).

About The Tax Guy...

Dean Paley CGA CFP is a Burlington accountant and financial planner who services individuals and business owners locally, nationally and internationally. Dean has appeared in the National Post, Toronto Star and Metro News.

To find out more, visit Dean's website Dean Paley CGA CFP or connect via Twitter @DeanPaleyCGACFP.

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Scott August 26, 2010 at 5:28 pm

I am a US Citizen with Landed Immigrant status living in Canada for the last 25 years. All of our income is from Canadian sources and file both Canadian and US taxes annually. My wife is Canadian and we own a home and various investments.
3 somewhat unrelated questions:
1. We have recently incorporated whereby all income goes into the corporation or a holding company. The structure is 60% ownership by my wife and 40% by me. How will the tax reporting change for US?
2. If we were to sell the family home, would we (I) be on the hook for any capital gains? Similarly, I had heard that if I became a Canadian Citizen, the US treats this as a deemed sale of assets and would face US Capital gains……is this true?
3. Lastly, is there any problems with me being an executor for family and friends residing in Canada given my citizenship?

Thank you

Tax Guy August 29, 2010 at 9:23 pm

Hello Scott,
You say you incorporated and all income is split 60/40. Is this a business or have you just incorporated? If this is a business, there is few issued from a Canadian perspective, if not, there will be problems because he CRA will challenge the corporate status.

Unfortunately from a US perspective, you may need to engage someone with more experience in these matters. I suspect that if you are both resident here, the business operated here and it’s offices are here, that it will be a Canadian corporation and you may not have US tax issues.

The US taxes based on citizen ship and residency and Canada only taxes based on residency. As a Canadian resident, your home is excluded from the tax on capital gains under the principal residence exemption. The US has a similar exemption. Becoming a Canadian citizen would not affect this.

If you give up US citizenship, you will have a US deemed disposition. This will have not impact whatsoever in Canada.

From an executorship position, the executor should reside in the same province as you. Outside your home province will cause some issues and can affect residency of your estate. Having a US resident or non-Canadian resident will cause you huge problems and a lot of unnecessary expenses.

CAN-US January 23, 2012 at 3:14 pm

My father leaves with his second wife and child in NY, and is very seek.
I live in Canada. The inheritance is 50/50. How do I get my part of the money?
Does his wife has to sell the house to give me the money?
Do I pay 2 taxes – US and Canada?
I am American Born !!

Ellen October 12, 2012 at 9:08 am

Hi Tax Guy,
I am a Canadian citizen, born and raised. Recently my American Uncle passed away and left an IRA account willed to me and my brothers. Are we limited by the IRA distribution rules (income over our life expectancy, 5 years, or lump sum) and what would be the tax consequences when we start taking the money? Will we pay US taxes and / or Canadian taxes on the funds.

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