US Estate Tax for Canadians Who Own US Property: What Happens When a Non-Citizen Dies Owning US Assets

The US imposes an estate tax on the worldwide assets of US citizens and residents, and on the US-situs assets of non-citizens and non-residents. A Canadian resident who dies owning a Florida condo, US stocks held directly (not through a fund), or an interest in a US business is subject to US estate tax on those assets. The exemption for non-citizens is only $60,000 (compared to $13.99 million for US citizens and residents in 2025), which means a Canadian with even modest US property exposure can face a US estate tax bill. The US-Canada treaty provides a prorated unified credit that significantly increases the effective exemption, but the math is not straightforward and the estate must file to claim the credit.

What property is subject to US estate tax for a non-citizen?

The US estate tax for NRAs applies only to property with a US “situs” (location). IRC 2104 and IRC 2105 define what is and is not US-situs:

US-situs property (taxable):

• Real property located in the US (the Florida condo, the Arizona ranch, the New York co-op)
• Tangible personal property located in the US (a car garaged in Florida, artwork hanging in a US home, jewelry kept in a US safe deposit box)
• Shares of US domestic corporations (Apple stock, Google stock, any stock of a company incorporated in the US). This is the one that catches people: a Canadian who owns US stocks directly in a Canadian brokerage account holds US-situs property
• Debt obligations of US persons (a promissory note from a US borrower), unless the debt qualifies for the portfolio interest exemption
• Interests in US partnerships and LLCs (to the extent the partnership/LLC holds US-situs assets)

Non-US-situs property (not taxable):

• Bank deposits in US banks (if held for interest), explicitly excluded by IRC 2105(b)
• Life insurance proceeds on the life of the NRA, even from US insurance companies
• Shares of foreign corporations (even if the corporation has US operations)
• US government obligations (Treasury bonds, T-bills)
• Shares of US domestic corporations held through a Canadian mutual fund or ETF (the Canadian fund is the shareholder, not the Canadian individual)

The fund-wrapper distinction is important. A Canadian who holds Apple stock directly in their TD Waterhouse account has US-situs property. A Canadian who holds a Canadian ETF that owns Apple stock does not, because the Canadian ETF (a Canadian corporation or trust) is the registered shareholder.

How does the US estate tax work for non-citizens?

The US estate tax on NRAs is computed in two steps:

Step 1: Compute the tax on US-situs property. The estate tax is calculated on the US-situs property at the same rates that apply to US citizens (graduated rates from 18% to 40%, with the top rate applying to taxable estates over $1 million).

Step 2: Apply credits. The statutory credit for NRAs under IRC 2102 is $13,000, which shelters only $60,000 of US-situs property. This is far less than the $13.99 million exemption for US citizens and residents.

Without the treaty, a Canadian who dies owning a $500,000 Florida condo would face US estate tax of approximately $155,800 (computed on $500,000 less the $60,000 exemption, at graduated rates up to 40%).

How does the treaty increase the exemption?

Article XXIX-B of the US-Canada treaty provides a prorated unified credit. Instead of the $13,000 statutory credit, a Canadian resident’s estate can claim a credit equal to:

(Value of US-situs assets / Value of worldwide assets) x Full US unified credit

The full US unified credit for 2025 shelters $13.99 million. So if a Canadian’s worldwide estate is $5 million and their US-situs assets are $500,000:

Prorated credit = ($500,000 / $5,000,000) x credit on $13.99 million = 10% x $5,389,800 = $538,980

The estate tax on $500,000 of US-situs property is approximately $155,800 (before credits). The prorated credit of $538,980 far exceeds the tax, so the estate owes zero US estate tax.

When does US estate tax actually bite?

The treaty prorated credit fails to eliminate US estate tax in two situations:

Large worldwide estates: If the Canadian’s worldwide estate exceeds $13.99 million USD, the prorated credit is still limited to the proportional share of the full credit. The US-situs property tax may exceed the prorated credit, producing a real US estate tax bill.

OBBBA update (2026): The One Big Beautiful Bill Act made the exemption permanent at $15 million per individual for deaths and gifts after December 31, 2025, indexed for inflation starting in 2027. The TCJA sunset that would have dropped the exemption to approximately $7 million is gone. The prorated treaty credit is now calculated against the $15 million base, widening the safety margin for most Canadian estates with US property.

Community property issues: If the Canadian is married and the US property is held in joint tenancy, the US estate includes only the decedent’s share (typically 50%). But the IRS can challenge the ownership split if the surviving spouse did not contribute to the acquisition.

What about Canadian tax on death?

Canada does not have an estate tax. Instead, Canada deems the deceased to have disposed of all capital property at FMV on the date of death (ITA 70(5)). The resulting capital gains are taxed on the deceased’s final T1 return.

For the Florida condo: the gain is the FMV at death minus the ACB (purchase price plus improvements). This gain is taxed in Canada at the capital gains inclusion rate.

The deceased’s estate faces both Canadian deemed disposition tax and US estate tax on the same US property. Article XXIX-B(6) of the treaty provides a credit mechanism: Canada must allow a credit for US estate tax paid on property that is also subject to Canadian deemed disposition tax, to the extent the US estate tax is attributable to that property. This prevents full double taxation, but the credit does not always eliminate it entirely (if the US estate tax exceeds the Canadian deemed disposition tax on the same property, the excess has no Canadian credit to offset).

What forms are required?

• Form 706-NA (US Estate and Generation-Skipping Transfer Tax Return for Nonresidents Not Citizens): filed by the estate’s executor or administrator. Due 9 months after the date of death (with a 6-month extension available on Form 4768). Must be filed to claim the treaty prorated credit, even if no tax is owed.
• IRS closing letter: The estate should request a closing letter (Form 4810) to confirm no further US estate tax is owed. This letter is often required to clear title on the US property.
• T1 final return (Canada): Reports the deemed disposition of the Florida condo and US stocks at FMV on the date of death.
• Form T2209 (Canada): Claims the foreign tax credit for any US estate tax paid against the Canadian deemed disposition tax.

How do you plan around this?

Hold US stocks through Canadian ETFs or mutual funds. If the Canadian holds a Canadian-domiciled ETF that owns US stocks, the ETF is the shareholder, not the Canadian. The Canadian’s estate holds units of a Canadian trust, not US-situs property. This eliminates the US estate tax issue entirely for publicly traded US stocks.

Hold US real estate through a Canadian corporation. If the Canadian creates a Canadian corporation (Canco) and Canco buys the Florida condo, the Canadian’s estate holds shares of Canco (a Canadian corporation, non-US-situs), not US real estate. The US estate tax does not apply to Canco shares. However, this structure has its own costs: the condo is now held by a corporation, which loses the personal-use property exemptions, creates annual Canadian corporate tax obligations on rental income, and may create US tax filing obligations for the corporation (Form 1120-F if the corporation is carrying on a US trade or business).

Joint tenancy with spouse. If the condo is held in joint tenancy with a Canadian spouse, only the decedent’s 50% share is included in the US estate. This halves the exposure. But it does not eliminate it, and the surviving spouse now holds 100% of the condo, creating the same problem at their death.

Cross-border life insurance. A life insurance policy on the Canadian’s life can fund the US estate tax liability. The policy proceeds are not US-situs property (IRC 2105(a)) and are not subject to US estate tax.

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