Cross-Border Inheritance: How Canada and the US Tax an Estate That Crosses the Border

Canada has no estate or inheritance tax. When someone dies, Canada treats them as having sold everything at fair market value the moment before death and taxes the gain on their final return. The US does the reverse: it taxes the value of what’s transferred, at up to 40%, but only above $15,000,000 for a US citizen dying in 2026 ($13,990,000 for 2025), and only on US assets above $60,000 for a Canadian resident. When an estate straddles the border, both systems can reach the same property, and Article XXIX B of the tax treaty is what stops them stacking.

What happens when a Canadian resident dies?

Canada deems the person to have sold every capital property at fair market value right before death, and the gain lands on their final T1 with half of it taxable. Property left to a spouse rolls over at cost instead, and an RRSP or RRIF is brought into income in full unless it passes to a spouse or a dependent child. The US only gets involved if the person owned US assets, and then it’s a separate estate tax return, Form 706-NA, on those assets alone.

• ITA 70(5)(a): the taxpayer “shall be deemed to have, immediately before the taxpayer’s death, disposed of each capital property of the taxpayer and received proceeds of disposition therefor equal to the fair market value of the property immediately before the death,” and under 70(5)(b) whoever inherits it acquires it “at a cost equal to its fair market value immediately before the death.” Half the gain is taxable under ITA 38(a), at every level of gain. The mechanics are in deemed disposition at death versus the US step-up and what heirs actually pay in Canada.
• ITA 70(6) switches the deemed sale off for property that passes to “the taxpayer’s spouse or common-law partner who was resident in Canada immediately before the taxpayer’s death” or to a qualifying spousal trust: “paragraphs 70(5)(a) and 70(5)(b) do not apply in respect of the property.” The gain waits until the survivor sells or dies. See spousal trusts in cross-border planning.
• An RRSP is different. ITA 146(8.8) deems the annuitant “to have received, immediately before the annuitant’s death, an amount as a benefit out of or under a registered retirement savings plan equal to” the fair market value of the plan. ITA 60(l) lets a surviving spouse, or a child or grandchild who was financially dependent, move a “refund of premiums” into their own RRSP or annuity and defer it. How the beneficiary designation plays out across the border is in RRSP and RRIF beneficiaries at death.
• The final T1 is due the following April 30 under ITA 150(1)(d). For someone who “dies after October of the year,” 150(1)(b) gives the legal representatives until the later of that date and “the day that is 6 months after the day of death.”
• On the US side, the Form 706-NA instructions say the executor must file “if the date of death value of the decedent’s U.S.-situated assets, together with the gift tax specific exemption and the amount of adjusted taxable gifts, exceeds the filing threshold of $60,000,” within 9 months of death. Shares of a US corporation count as US property under IRC 2104(a) “only if issued by a domestic corporation”; US bank deposits and life insurance on the deceased’s life don’t, under IRC 2105. The domestic credit is only $13,000 under IRC 2102(b)(1), which is where the $60,000 figure comes from; the treaty improves on it, below. More in the $60,000 US estate tax exemption for Canadians and filing Form 706-NA for a Canadian estate.

What happens when a US citizen dies with Canadian assets?

The US taxes a citizen’s worldwide estate, Canadian cottage included, but only the part above the basic exclusion: $13,990,000 for a death in 2025 and $15,000,000 in 2026, indexed after that, at a top rate of 40%. Form 706 is due nine months after death. Canada’s answer depends on residence. A US citizen living in Canada gets the same deemed sale of everything as any other resident, while a non-resident is taxed only on taxable Canadian property such as Canadian real estate.

• IRC 2010(c)(3)(A), as amended by P.L. 119-21: “the basic exclusion amount is $15,000,000,” indexed for “any decedent dying in a calendar year after 2026,” for “estates of decedents dying and gifts made after December 31, 2025.” The IRS’s 2026 inflation adjustments confirm “a basic exclusion amount of $15,000,000, up from a total of $13,990,000 for estates of decedents who died in 2025,” and the IRS estate tax page lists the same figures as the filing thresholds.
• IRC 2001(c) tops out at “$345,800, plus 40 percent of the excess of such amount over $1,000,000.” The return is due “within 9 months after the date of the decedent’s death” under IRC 6075(a).
• Canada taxes a non-resident under ITA 2(3) only where the person “disposed of a taxable Canadian property,” and the deemed sale at death is a disposition. The ITA 248(1) definition starts with “real or immovable property situated in Canada.” US-listed stocks held by a US resident are outside Canada’s reach at death; the Ontario cottage is not.
• The marital deduction has a citizenship catch. Under IRC 2056(d), “if the surviving spouse of the decedent is not a citizen of the United States” then “no deduction shall be allowed,” unless the property passes “in a qualified domestic trust” under IRC 2056A. The treaty’s marital credit, below, is the alternative. See QDOT planning for a non-citizen spouse.
• Life insurance paid on death is excluded from the beneficiary’s income under IRC 101(a)(1), but IRC 2042 pulls the proceeds into a US person’s gross estate where the estate receives them or the deceased held incidents of ownership. That’s why insurance is bought to pay the estate tax rather than to escape it. More in life insurance across the border.

How does the treaty stop the two taxes from stacking?

Article XXIX B of the treaty gives three kinds of relief. A Canadian resident’s estate gets a share of the full US exemption in proportion to how much of the estate sits in the US, in place of the flat $60,000. Canada then lets the estate deduct the US estate tax from the Canadian tax on the deemed gains on US property. And the US lets a citizen’s or resident’s estate credit the Canadian income tax paid at death on property outside the US, as if it were a foreign death tax.

	Canada	United States
What’s taxed	The accrued gain, through a deemed sale at death (ITA 70(5))	The value of the estate transferred (IRC 2001)
Who’s taxed	The deceased, on the final T1	The estate, on Form 706 (citizens and residents) or 706-NA (everyone else)
Exemption	None; half the gain is taxable (ITA 38(a))	$15,000,000 in 2026 ($13,990,000 in 2025) for citizens and residents; $60,000 of US assets for others, lifted by the treaty proration
Top rate	Your marginal rate on half the gain	40% above $1,000,000 of taxable estate
Spouse	Rollover at cost (ITA 70(6))	Marital deduction, denied for a non-citizen spouse unless a QDOT is used; treaty marital credit as a fallback
Deadline	April 30 after death, or 6 months after death if later for deaths after October	9 months after death (IRC 6075(a))
Credit for the other side	Deduct US estate tax from Canadian tax on US-property gains (treaty XXIX B(6))	Credit Canadian income tax at death on non-US property (treaty XXIX B(7), IRC 2014)

• Prorated exemption. Article XXIX B(2) gives the estate of a Canadian resident who isn’t a US citizen “a unified credit equal to the greater of (a) The amount that bears the same ratio to the credit allowed under the law of the United States to the estate of a citizen of the United States as the value of the part of the individual’s gross estate that at the time of the individual’s death is situated in the United States bears to the value of the individual’s entire gross estate wherever situated; and (b) The unified credit allowed to the estate of a nonresident not a citizen of the United States.” The credit “shall be allowed only if all information necessary for the verification and computation of the credit is provided,” which means disclosing the worldwide estate on the 706-NA.
• Marital credit. Article XXIX B(3) and (4) add a non-refundable credit for property passing to a surviving spouse, equal to the lesser of the unified credit and the US tax on that property, if the executor “waives irrevocably the benefits of any estate tax marital deduction.” The 706-NA instructions carry the same election.
• Canada’s credit. Under Article XXIX B(6), US “Federal or state estate or inheritance taxes payable in the United States” on US-situated property are “allowed as a deduction from the amount of any Canadian tax otherwise payable by the individual for the taxation year in which the individual died” on income and gains arising in the US and, where the worldwide estate exceeded “1.2 million U.S. dollars,” on gains “from property situated in the United States.” The deduction can’t exceed the Canadian tax on that income, so a high-basis asset with a big US estate tax and a small Canadian gain leaves part of the US tax unrelieved.
• The US credit. Article XXIX B(7) gives the estate of a US resident or citizen “a credit … against such tax imposed in respect of property situated outside the United States, for the federal and provincial income taxes payable in Canada in respect of such property by reason of the death,” computed under the US rules for foreign death taxes. Those rules are IRC 2014, which limits the credit by the ratio of the foreign-taxed property to the whole estate.
• Small estates. Article XXIX B(8): if the worldwide estate of a Canadian resident (not a US citizen) “does not exceed 1.2 million U.S. dollars,” the US may tax only property whose gain the US could have taxed under Article XIII, which in practice means US real estate. The 706-NA instructions call this the “small estate exemption.”

How much does a Canadian with a Florida condo actually pay at death?

Often nothing to the US, because the prorated treaty credit covers the tax on a modest US holding, and the Canadian tax on the deemed gain is the bigger number. Where the estate is large enough that some US estate tax survives the credit, the Article XXIX B(6) deduction brings the combined bill back to roughly the Canadian tax alone. Here’s the arithmetic on round numbers.

What does the heir owe when the money crosses the border?

Usually nothing on the inheritance itself. The US gives inherited property a basis equal to its value at death, and Canada does the same through the deemed sale, so the heir’s future gain starts from that date on both sides. What the heir does pick up is reporting. A US heir reports a foreign inheritance over $100,000 on Form 3520 and any inherited Canadian accounts on the FBAR and Form 8938, and a Canadian heir tracks inherited US accounts for Form T1135 once their cost tops $100,000.

• IRC 1014(a)(1) sets the basis of property acquired from a decedent at “the fair market value of the property at the date of the decedent’s death.” Canada’s equivalent is the 70(5)(b) cost quoted above, and it applies whether or not the deceased lived in Canada.
• IRS, Gifts from foreign person: a US person must report bequests “from a nonresident alien or foreign estate … only if the aggregate amount received from that nonresident alien or foreign estate … exceeds $100,000 during the taxable year.” No tax is due with the form, but the penalties for skipping it are real; inheriting from a Canadian parent covers it.
• Inherited Canadian accounts become the US heir’s foreign accounts. The FBAR is due once “the aggregate value of those foreign financial accounts exceeded $10,000 at any time during the calendar year,” and Form 8938 once specified foreign assets pass the threshold for your filing status and where you live. Canadian mutual funds in those accounts are usually PFICs under IRC 1297, which catches a fund where “75 percent or more of the gross income of such corporation for the taxable year is passive income” or at least 50 percent of its assets are passive. Selling them inside the estate, before they pass to a US heir, is often the cleanest fix.
• A Canadian heir who inherits US accounts files Form T1135 once “the total of all amounts each of which is the cost amount to the entity of a specified foreign property of the entity exceeds $100,000” under ITA 233.3(1).
• Inherited RRSP, US heir. The plan’s value is taxed on the deceased’s final Canadian return under 146(8.8), and the portion already taxed there is carved out of the heir’s Canadian income by the definition of “benefit” in ITA 146(1). How the US taxes the payout to a US-resident heir is unsettled; Article XVIII(1) caps the amount the US can include at “the amount that would be included in the first-mentioned State if the recipient were a resident thereof,” and how that cap applies to a beneficiary is argued both ways.
• Inherited IRA or 401(k), Canadian heir. The US taxes the money as it comes out: Publication 515 tells the payer “you must withhold tax on the gross amount of pensions and annuities that you pay that are from sources within the United States,” and Article XVIII(2)(a) caps the US tax on “a periodic pension payment” at 15%. Canada includes the payment as “a superannuation or pension benefit” under ITA 56(1)(a)(i) and credits the US tax under ITA 126(1). The choices on timing are in inheriting a US IRA or 401(k) as a Canadian.

What should I do next?

If you own assets on both sides, get a current value for each one and note its cost, because the US tax runs on the value and the Canadian tax runs on the gain, and the treaty credit needs both numbers. If you’re the executor, calendar the nine-month US deadline first; the Canadian final return has more time. If you’re the heir, ask for the date-of-death values in writing before the estate closes, since they become your cost base in both countries.

• Death taxes on cross-border Canada-US assets, the asset-by-asset view
• Do I need two wills?, the situs-based will structure
• Estate freezes, alter ego and bypass trusts, locking in values before death
• Executor liability on a cross-border estate, what the executor is personally on the hook for
• Cross-border gift tax, giving during life instead

Related guides:

• Cross-Border Estate and Inheritance Tax: What Happens When Assets and Heirs Are in Different Countries

This guide is general information, not tax advice for your specific situation. Which points apply, and how, depends on your facts.