US Estate Tax for US Citizens Living in Canada

A US citizen who lives in Canada is still subject to US estate tax on everything they own, wherever it sits. Most never owe any, because the basic exclusion for 2026 deaths is $15,000,000. At the same death, Canada taxes the deemed sale of their capital property, plus any RRSP or RRIF, on the final Canadian return. Article XXIX B of the Canada-US treaty gives each country a way to credit the other’s tax. The wider planning picture is in our cross-border estate planning guide.

Do US citizens living in Canada pay US estate tax?

They’re subject to it, wherever they live. IRC 2001(a) imposes the tax on the taxable estate “of every decedent who is a citizen or resident of the United States,” and IRC 2031(a) builds the gross estate from all property “wherever situated.” The Form 706 instructions say the gross estate includes “property outside the United States” (Instructions for Form 706).

• The exclusion. Every estate gets a credit equal to the tentative tax on the applicable exclusion amount (IRC 2010). The basic exclusion is $15,000,000 for 2026 deaths and was $13,990,000 for 2025 deaths (IRS, what’s new: estate and gift tax). The 706 instructions put the 2026 basic credit at $5,945,800. On the IRC 2001(c) table, the 2025 credit works out to $5,541,800. The statute indexes the $15,000,000 for deaths after 2026.
• The rate. The table tops out at $345,800 plus 40 percent of the amount over $1,000,000, so the tax above the exclusion runs at 40 percent.
• Lifetime gifts count. Taxable gifts after 1976 are added back in computing the tax, and they also count toward the filing threshold.
• Who’s a resident. For estate tax, the IRS treats a resident as someone with a US domicile at death. A US citizen doesn’t need that test, because citizenship alone brings the worldwide estate in.

A Canadian who isn’t a US citizen is taxed only on US property, under different rules covered in US estate tax for Canadians: the $60,000 exemption vs the treaty.

At the death of a US citizen resident in Canada	United States	Canada
What’s taxed	The worldwide gross estate, IRC 2031(a)	Deemed gains on capital property (half taxable) and the full value of an RRSP or RRIF, on the final T1
Tax-free amount or deferral	$15,000,000 basic exclusion for 2026 deaths; marital deduction only for a US-citizen spouse or a QDOT	Rollover to a spouse or spousal trust resident in Canada, ITA 70(6)
Relief for the other country’s tax	Credit for Canadian income tax on property outside the US, Article XXIX B(7)	Deduction for US estate tax on US property, capped and limited to US-source income, Article XXIX B(6)
Return and due date	Form 706, 9 months after death if required	Final T1, April 30 of the next year for a death from January to October
Heir’s cost afterward	Fair market value at death, IRC 1014(a)	Fair market value immediately before death, ITA 70(5)(b)

What happens if my spouse isn’t a US citizen?

The unlimited marital deduction disappears. IRC 2056(a) deducts property passing to a surviving spouse, but IRC 2056(d)(1) says that if the spouse “is not a citizen of the United States,” no deduction is allowed and the half-inclusion rule for spousal joint property in IRC 2040(b) doesn’t apply. For a US citizen married to a Canadian, that’s the first issue to check.

• A QDOT. Property passing to a qualified domestic trust gets the deduction back. Under IRC 2056A(a), the trust must require at least one trustee who’s a US citizen or a domestic corporation, and that trustee must have the right to withhold the estate tax from any distribution other than income. The executor elects it on the estate tax return, and no election can be made on a return filed more than one year after the due date, extensions included. Estate tax is then imposed on distributions of principal and on what’s left in the trust when the surviving spouse dies (IRC 2056A(b)(1)). More detail is in do we need a QDOT?.
• The treaty marital credit. Article XXIX B(3) gives a non-refundable credit, on top of the unified credit, for property that would qualify for the marital deduction if the spouse were a US citizen. It applies where the deceased was a US citizen or a resident of either country and the spouse was a resident of either country, and the executor must elect it and irrevocably waive the marital deduction (Article XXIX B(3)). Under XXIX B(4) the credit is the lesser of the unified credit and the US estate tax on the property passing to the spouse.
• Portability. The 706 instructions say a nonresident surviving spouse who isn’t a US citizen “may not take into account the DSUE amount of a deceased spouse, except to the extent allowed by treaty” with the spouse’s country of citizenship.

How does Canada tax the same death?

As income on the final return. ITA 70(5) deems a person who dies to have disposed of each capital property for its fair market value immediately before death, and half of the gain is taxable under ITA 38(a). A RRIF’s full value is deemed received under ITA 146.3(6), and an RRSP’s under ITA 146(8.8), unless the plan passes to a spouse in a way the rules allow.

• The spousal rollover. ITA 70(6) defers the gain on property left to a spouse or spousal trust, where the deceased was resident in Canada immediately before death, the spouse was too, and the property vests within 36 months. The subsection has no citizenship condition, so a US citizen living in Canada qualifies on the same terms.
• The deadline. The final return is due April 30 of the following year for a death between January 1 and October 31, and six months after the death for a death in November or December (CRA, filing and payment due dates).
• Two bases. The US gives inherited property a basis equal to fair market value at death (IRC 1014(a)). Canada taxes the gain and gives the heir a cost equal to fair market value. How the two line up is in deemed disposition vs the US step-up.

The Canadian rules on their own are in does Canada have an estate tax?.

How does the treaty stop double tax at death?

Mostly through a US credit. Article XXIX B(7) says that in determining US estate tax on the estate of an individual who was a resident or citizen of the US, “a credit shall be allowed 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” (Article XXIX B(7)). The credit is computed under the US foreign death tax credit rules, as though Canada’s income tax were a creditable death tax.

• The limit. Those rules cap the credit at the US estate tax (after the unified credit) times the share of the gross estate that’s situated in the foreign country and taxed there (IRC 2014(b)), and at the part of the foreign tax that relates to that property.
• The forms. The credit goes on Schedule P of Form 706, supported by Form 706-CE. The instructions say the credit “cannot finally be allowed until the foreign tax has been paid and a Form 706-CE evidencing payment is filed.”
• The Canadian side is narrow. Article XXIX B(6) lets US estate tax on property in the US be deducted from Canadian tax for the year of death on income and gains arising in the US and, where the worldwide gross estate is over US$1.2 million, on income and gains from US property. For a US citizen, the deductible amount can’t exceed the US tax that would have been payable if the person weren’t a US citizen. For someone whose assets are all in Canada, that’s usually little or nothing.
• What doesn’t apply. The prorated unified credit in XXIX B(2) is for the estate of an individual “other than a citizen of the United States,” so a US citizen’s estate uses the full exclusion instead.

When is Form 706 due for a US citizen in Canada?

Within 9 months after the date of death, if one is required (IRC 6075(a)). For 2026 deaths, the 706 instructions require a return for a US citizen or resident whose gross estate, plus adjusted taxable gifts and specific exemption, is more than $15,000,000, or whose executor elects to pass the unused exclusion to a surviving spouse (Instructions for Form 706). Living in Canada doesn’t change either test.

• Extensions. Form 4768 gets an automatic 6-month extension to file. The tax is still due within 9 months unless an extension of time to pay was granted.
• Portability only. An executor filing only to elect portability may file on or before the fifth anniversary of the death under Rev. Proc. 2022-32, with the required statement at the top of the return.
• Treaty positions. The instructions say that if you report items based on a death tax treaty, “you may have to attach a statement to this return disclosing the return position that is treaty based,” under Regulations section 301.6114-1. The marital credit has its own statement that refers to the treaty, waives QDOT rights and shows the computation.
• US heirs of the estate. A US person who receives more than $100,000 in a year from a foreign estate reports it on Form 3520 (IRS, gifts from foreign persons). The rest of the beneficiary side is in a US person inheriting from a Canadian estate.

The rest of a US citizen’s yearly filing in Canada is covered in an American expat’s US tax obligations in Canada.

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