US Estate Tax Exposure for Canadians

A Toronto retiree dies owning CAD $3.6 million in worldwide assets — a paid-off house, a couple of registered accounts, a non-registered brokerage account holding $480,000 worth of Apple, Microsoft, and a few US-listed ETFs. The home is exempt under the principal residence exemption. The RRSPs are fully taxable on the final return but flow to her spouse under a rollover. The non-registered US stocks are the surprise — they are US-situs assets, exposing the estate to a US estate tax filing the family had not budgeted for. The Canada-US Tax Treaty's pro-rata unified credit ultimately eliminates the US tax in this case, but the filing of a US Form 706-NA, the IRS transfer-tax clearance, and the cross-border legal coordination still cost the estate roughly CAD $12,000 in professional fees and add four months to the administration.

This is the unintended-US-exposure scenario more Canadians fall into than the snowbird-with-a-Florida-condo scenario, because most Canadians with non-registered investment portfolios hold at least some US-listed securities. The point of this guide is to clarify which assets count as US-situs, when the US estate tax actually bites, how the Canada-US Tax Treaty pro-rata credit works, and the practical thresholds that should trigger cross-border planning attention.

We will walk the US-situs definition, the non-resident unified credit, the treaty pro-rata credit, the Form 706-NA filing requirement, the registered-account question, and the planning options for Canadians with material US-situs exposure.

What counts as a US-situs asset #

The Internal Revenue Code defines US-situs assets for non-US-person estate-tax purposes under section 2104.^[4] The core categories:

• Real estate located in the United States — Florida condos, Arizona winter homes, US rental properties, US vacant land.
• Tangible personal property located in the United States — a boat moored in a US marina, art held in a US storage facility, a car titled in a US state.
• Shares of US corporations — Apple, Microsoft, US-listed ETFs that are themselves US corporations, regardless of where the brokerage account holding them is located.
• Certain US-issued debt instruments (with some exceptions for portfolio interest debt obligations).
• Interests in US partnerships and US-incorporated entities in some structures.

What is generally not US-situs:

• US bank account cash (specifically excluded by statute for non-resident non-citizens).
• US life insurance proceeds paid to a non-US-citizen beneficiary.
• Shares of non-US corporations held through US brokers (the situs follows the underlying security, not the broker).
• Canadian-listed ETFs that hold US securities (the Canadian fund is the security; the underlying US holdings are owned by the fund, not the Canadian investor directly).

The brokerage-account location does not change the situs of the underlying security. A Toronto investor with Apple shares held at TD Direct Investing in Canada has the same US-situs exposure as a Toronto investor with the same Apple shares held at Charles Schwab in New York.

The non-resident unified credit — and why it's not enough #

The default US estate tax treatment for a non-US person is harsh. The Internal Revenue Code provides a non-resident unified credit that shelters roughly US$60,000 of US-situs assets from US estate tax.^[2] Above that threshold, US estate tax applies on a graduated scale topping out at a 40% marginal rate.

For a Canadian with US$200,000 of US stocks held in a non-registered account, the default exposure (before treaty relief) is on roughly US$140,000 of taxable value — easily a five-figure US estate tax bill. Without the Canada-US Tax Treaty, this would be a real problem for ordinary Canadian retail investors.

The Canada-US Tax Treaty pro-rata credit #

The Canada-US Tax Convention (1980), Article XXIX B, allows Canadians who die owning US-situs assets to claim a pro-rata share of the much larger US unified credit that applies to US citizens and residents.^[1] The US unified credit shelters a basic exclusion amount that, for 2026, is roughly US$15 million per individual — made permanent by the One Big Beautiful Bill Act (enacted July 2025) and indexed for inflation in future years.^[6]

The pro-rata share is calculated as:

Pro-rata credit = US unified credit × (US-situs assets ÷ worldwide gross estate)

The arithmetic for the Toronto example:

• Worldwide gross estate: CAD $3.6 million ≈ US$2.7 million (at illustrative FX).
• US-situs assets: US$480,000.
• Pro-rata share = US unified credit × (480,000 ÷ 2,700,000) ≈ 17.8% of the US unified credit.
• Applied against the taxable US-situs value, this generally eliminates the US estate tax entirely.

For a Canadian with a worldwide estate below the US unified credit threshold (in the multi-million range), the pro-rata calculation often eliminates the US tax even with relatively significant US-situs holdings. For a Canadian with a worldwide estate substantially above the US unified credit threshold, the pro-rata calculation shelters only a fraction of the US-situs value, leaving a real US tax bill.

The treaty also provides a marital credit for assets passing to a surviving spouse, which can effectively double the available credit in some circumstances. Most Canadian couples are both Canadian citizens, so the marital credit applies to them; the credit is more restricted where one spouse is a US citizen.

Form 706-NA — the filing requirement #

The US estate tax return for a deceased non-US person is Form 706-NA, United States Estate (and Generation-Skipping Transfer) Tax Return for the Estate of a Non-resident Not a Citizen of the United States.^[3]

The form is generally required when:

• The deceased was a non-US person at the time of death, and
• The deceased owned US-situs assets at the time of death valued above the US$60,000 non-resident threshold.

Form 706-NA is the mechanism by which the treaty pro-rata credit is formally claimed. The filing must include:

• A full inventory of the deceased's US-situs assets at fair market value as of the date of death.
• A statement of the deceased's worldwide gross estate (used for the pro-rata calculation).
• Supporting documentation for the treaty position.
• Filing within nine months of the date of death (extensions are available).

Skipping the filing — even where the treaty would eliminate the tax — can complicate the IRS's release of the US assets back to the Canadian estate. US brokerages and US property registrars often require an IRS "transfer certificate" before releasing US assets to a non-US estate. The transfer certificate is generally issued only after Form 706-NA is filed and accepted.

Registered accounts — RRSPs, RRIFs, and TFSAs #

A common Canadian planning question — are US securities held inside Canadian registered accounts exposed to US estate tax?

RRSPs and RRIFs. The prevailing practitioner view is that US-listed securities held inside an RRSP or RRIF are sheltered from US estate tax. The reasoning rests on the IRS's treatment of these accounts as similar to US qualified retirement plans, which receive special situs treatment. The position is generally followed in practice and is the basis for the standard cross-border planning advice to "hold US securities inside the RRSP."

TFSAs. The position is less clear. The TFSA does not have the same direct equivalent in US law that RRSPs do, and some cross-border specialists treat TFSA-held US securities as exposed. Conservative planning generally favours holding US-listed securities inside the RRSP or RRIF first, and only secondarily inside the TFSA, with the non-registered account being the last place to hold them.

A Canada-US tax accountant should review the specific portfolio with this in mind; the registered-account answer is not crisp law but practical guidance.

Practical thresholds for Canadian planning #

A few rough planning thresholds that flag when US estate tax exposure should be a priority:

• US-situs assets under US$60,000: generally no US filing required, no US tax owing.
• US-situs assets US$60,000-200,000 and a moderate Canadian estate: Form 706-NA generally required but treaty credit eliminates tax; the filing cost is the main consideration. Restructuring (moving US securities into the RRSP) often pays for itself in avoided future filings.
• US-situs assets above US$200,000 in a Canadian estate above the US unified credit threshold: real US tax exposure. Cross-border planning becomes meaningful — options include life insurance to fund the US tax, holding US securities through a Canadian-listed ETF that holds them indirectly, or in larger cases, a Canadian partnership or hybrid structure.
• US real estate of any value: US filing required, ancillary US probate likely, deeper planning warranted from the time of purchase. See our companion piece on snowbird estate planning.

Coordination with the Canadian deemed-disposition rule #

The Canadian Income Tax Act applies the deemed-disposition rule to the same US-situs asset on the owner's death.^[5] The US estate tax does not displace the Canadian capital gains tax — both regimes can hit the same asset.

The Income Tax Act and the Canada-US Tax Treaty provide for foreign tax credits in some circumstances to mitigate double taxation. The credit mechanics are technical and the result is not always full relief, particularly when the US tax is on a different base (gross value) than the Canadian tax (capital gain). A cross-border accountant should project the combined exposure rather than each regime in isolation.

For the underlying Canadian rule, see our piece on capital gains tax at death in Canada.

What a Canadian with material US-situs assets should do #

A short list:

1. Inventory the US-situs assets. Pull every account statement and identify which securities are US-listed corporations vs Canadian. Total the US-situs exposure.
2. Project the worldwide estate. If the worldwide estate is well below the US unified credit threshold, the treaty pro-rata credit will generally eliminate US tax — focus on the filing cost.
3. Restructure where it pays for itself. Move US securities inside the RRSP or RRIF where possible. Consider Canadian-listed ETFs that hold the US exposure indirectly.
4. Coordinate with a Canada-US tax accountant if US-situs exposure is material or if the worldwide estate is in the multi-million range.
5. Document the cross-border plan in the executor-facing record, so the eventual Form 706-NA filing is not a months-long forensic reconstruction.

What we focus on at It's Simple Will #

It's Simple Will captures the Canadian-side documents and the practical "where is everything" map an executor will need to handle the US filing. The Life Discovery Kit records every brokerage account, the US-vs-Canadian breakdown of the securities, the cost-base records, and the contact details for any cross-border accountant or US-side lawyer. For a Canadian estate with material US-situs exposure, this map is often the single most valuable document the family produces.

The Will Creator handles the Canadian will and the residue allocation that ultimately receives the post-tax US assets. The US-side filing and any cross-border restructuring should be handled in parallel with a qualified Canadian or cross-border accountant. The Canadian who plans for the US exposure years before death generally produces an estate that handles the US filing as a routine month-three task; the Canadian who has not planned for it generally produces an estate where the US side takes longer than the Canadian side and adds five-figure professional fees that were avoidable.