US estate tax: the $60,000 nonresident threshold for Canadians

Section 01How US estate tax reaches a Canadian non-resident

The United States taxes the worldwide estate of its own citizens and residents, but a Canadian who dies as a non-resident is taxed only on US-situs assets. That single word, situs, is the whole game: the US reaches your Florida condo and your US shares, but not your Canadian house, your Canadian accounts, or your worldwide net worth.

The filing threshold is USD 60,000 of US-situs assets at death. Below that, there is no US estate tax and no return. At or above it, the estate must file Form 706-NA, and tax may be due. The tax itself is graduated, running from 18% to 40%, with the top 40% rate reaching taxable estates above USD 1,000,000.

The reason the threshold sits at USD 60,000 is the unified credit. A bare nonresident receives a unified credit of USD 13,000, and USD 13,000 is precisely the tax on USD 60,000 of assets at the bottom of the rate schedule. So the credit and the threshold are two ways of describing the same floor. The rest of this guide is about how the Canada-US treaty replaces that small floor with a much larger one.

Section 02Who is concerned, who is not

The reader of this article is in one of three positions. First, a living Canadian (non-US-citizen, non-US-permanent-resident) who owns Florida real estate, US brokerage assets, US LLC interests, or shares of US-incorporated corporations and wants to understand the estate-tax exposure they leave behind. Second, an executor or surviving family member who has just inherited a Canadian's US assets and discovered that Form 706-NA is due nine months after death, with no extension by right. Third, a cross-border planner or attorney assessing whether the Canadian's structure needs amendment (alternative ownership: Canadian corporation, partnership, marital share, life insurance funding) to mitigate the exposure.

The threshold does not concern three groups. US citizens and lawful permanent residents are subject to the general US estate tax on their worldwide estate, but with the unified credit exemption set at USD 13.99 million in 2025 (a different, much higher threshold). Canadians whose total US-situs assets at death are below USD 60,000 have no filing obligation under § 6018 of the Internal Revenue Code: the threshold is per-estate, not per-asset, but estates below it simply do not file. Living donors making cross-border gifts during life fall under the gift-tax regime, not the estate-tax regime, with its own (much lower) per-recipient annual exclusion; see the gift tax guide.

Section 03Which assets are US-situs

Only US-situs assets count toward the USD 60,000 threshold and toward the estate tax, so identifying them correctly is the first practical step. The category follows the asset's nature, not where the account that holds it is located, and that is where Canadians are most often caught out.

The assets that are US-situs include US real estate (a Florida condo or a Cape Coral villa), shares of US-incorporated corporations (Apple, Microsoft, and the like) even when those shares sit in a Canadian brokerage account, interests in US LLCs, and certain US brokerage assets. A Canadian who holds USD 200,000 of US stocks inside a Canadian non-registered account is holding USD 200,000 of US-situs assets for estate-tax purposes, a fact that surprises many investors who assume a Canadian account shields them.

There is one useful subtlety that runs the other way. Units of a Canadian mutual fund trust that itself holds US shares are generally treated as a non-US-situs asset, because the estate owns an interest in a Canadian fund, not the underlying US shares. So two Canadians with identical US-equity exposure can have very different US estate-tax footprints depending on whether they hold the US shares directly or through a Canadian fund. How you hold the exposure, not just how much you hold, drives the situs result.

Section 04The treaty's prorated unified credit

Without the treaty, a Canadian has nothing but the USD 60,000 exemption, which a single Florida condo blows through immediately. Article XXIX-B of the Canada-US tax treaty changes the arithmetic by letting a Canadian claim a prorated share of the much larger exemption a US citizen would get.

The formula is a simple ratio. The prorated exemption equals the full US exemption multiplied by (US-situs assets divided by the worldwide estate). The full US exemption is USD 13.99 million in 2025 and USD 15 million in 2026. So if a Canadian's US-situs assets are 10% of their worldwide estate, the treaty lets them claim 10% of the 2026 exemption, which is USD 1.5 million of exemption, against US-situs assets, instead of the bare USD 60,000. Technically the relief is delivered as a credit, and the estate claims the greater of the bare USD 13,000 unified credit and the prorated unified credit; expressed as an exemption, that is the greater of USD 60,000 and the prorated share.

One clean rule falls out of the formula. A Canadian owes no US estate tax if either their US-situs assets are at or below USD 60,000, or their worldwide estate is at or below the full exemption (USD 15 million in 2026), because in that second case the prorated exemption is large enough to cover all of their US-situs assets. Between those two boundaries, the tax is partial: the prorated exemption covers part of the US-situs assets and the excess is taxed.

Section 05The counterintuitive effect of proration

The ratio at the heart of the formula produces a result that catches people off guard. The prorated exemption rises and falls with the share of the worldwide estate that is US-situs. A larger worldwide estate, holding the US asset constant, makes that share smaller, which makes the prorated exemption smaller.

The consequence is that wealth works against you here. Consider, as an illustration of the mechanism, a Canadian with a USD 500,000 Florida condo who has a USD 50 million worldwide estate. The US-situs share is 1%, so the prorated exemption is 1% of USD 15 million, or USD 150,000, which does not cover the USD 500,000 condo. The estate owes US tax on the uncovered excess, even though the condo is a rounding error in a USD 50 million fortune. A Canadian of more modest means with the same condo but a USD 2 million worldwide estate has a 25% share, a prorated exemption of USD 3.75 million, and no US tax at all.

The planning lever points the same way: anything that reduces the worldwide estate (lifetime gifting, for example) raises the US-situs share and therefore raises the prorated exemption. That is the opposite of the usual instinct, and it is why the very wealthy are the Canadians most likely to need active estate-tax planning on even a small US holding. The cheapest moment to pull those levers is before the deed is recorded; the guide to estate planning before buying in Florida walks through ownership choices that are easy on day one and expensive to retrofit.

Section 06The marital and foreign-tax credits

The prorated unified credit is the main relief, but the treaty provides two more. The first is the marital credit. When US-situs assets pass to a surviving spouse, the treaty allows an additional credit that, in effect, doubles the prorated unified credit otherwise available. The IRM conditions are specific: at the date of death the deceased had to be a citizen or resident of the United States or Canada, and the surviving spouse had to be a resident of the United States or Canada.

The marital credit is powerful, but it is a deferral, not an exemption. It can push the US estate tax down to zero on the first death, but the tax can resurface at the later death of the surviving spouse, when the US-situs assets are no longer protected by a spouse. Treating the marital credit as if it erased the tax permanently is a common and expensive misunderstanding; our guide on the surviving spouse and Florida property covers the deferral mechanics in depth.

The second relief is the foreign tax credit machinery that coordinates the two countries. Canada does not levy an estate tax, but it deems a capital disposition at death, so the same Florida condo can face Canadian capital gains tax and US estate tax on the same event. The treaty's credit rules are designed to prevent the two systems from fully taxing the same value, and the detail belongs with a cross-border tax professional who can model both returns together.

Section 07Why you file even when no tax is due

This is the most important practical point in the guide, and the one most often missed. The treaty relief is not automatic. A Canadian estate claims the prorated credit, the marital credit, and the treaty position by filing Form 706-NA. If the estate does not file, the IRS has no record of a treaty claim, and the default nonresident rules apply.

The reason this matters even when the tax is zero is the stepped-up cost basis. When the return is filed and the US assets are reported at their fair market value at death, the heirs take those assets with a basis stepped up to that value. A later sale is then taxed only on the appreciation after death. If the estate never files, the heirs can be left without that step-up, holding the assets at the original (sometimes near-zero) basis, so a later sale is taxed on the entire value rather than just the post-death gain.

The result is a trap that turns a zero-tax estate into an expensive one a generation later. The estate tax that the treaty erased might have been nothing, but the capital gains tax on an unstepped basis can be very real. Filing Form 706-NA to claim the position, and to lock in the stepped-up basis, is therefore worthwhile even when the estate tax itself comes out at zero. The mechanics of a later sale, including FIRPTA withholding on a Florida property, are covered in our FIRPTA guide.

Section 08Deadlines, extension, and the Transfer Certificate

Form 706-NA is due nine months after the date of death. An extension of time to file, up to six months, is available by filing Form 4768, but it is not a right: it must be requested, with a reason, and granted. Missing the nine-month deadline without an approved extension exposes the estate to late-filing consequences, so the deadline should be calendared the moment the estate is opened.

Processing is slow. The IRS typically takes 12 to 18 months to work through a Form 706-NA, and the practical bottleneck this creates is the Transfer Certificate. A Transfer Certificate is an IRS document confirming that the estate's US tax obligations have been satisfied, and US institutions usually will not release or retitle US assets without it. The title company handling the sale of a Florida condo, or the brokerage holding US shares, will commonly wait for the Transfer Certificate before completing the transfer.

For a snowbird's heirs, this is the part that bites in real life. The estate may be unable to sell the Florida condo for many months after death, even when no tax is owed, because the Transfer Certificate has not yet issued. Anyone planning around a Florida property in an estate should assume the asset will be locked for a year or more and plan the family's cash flow accordingly. Once the Transfer Certificate finally lands and the condo sells, the next chapter is dividing the money: see splitting Florida sale proceeds among Canadian heirs.

Section 09Worked example

Put the pieces together with a concrete case, in US dollars throughout. A Canadian dies owning a Florida condo worth USD 500,000 and USD 100,000 of US-incorporated shares held in a Canadian brokerage account. Their total worldwide estate, including their Canadian home and accounts, is USD 3,000,000.

The lesson of the example is the gap between tax and filing. The estate tax is zero, because the prorated exemption of USD 3,000,000 dwarfs the USD 600,000 of US-situs assets. But the estate must still file Form 706-NA. Skip it, and the heirs may lose the stepped-up basis on the condo and the shares, and pay capital gains tax on the full value when they sell.

Section 10Common mistakes

Believing no filing is needed when the treaty removes the tax. This is the central trap. The treaty relief is claimed on Form 706-NA, and not filing forfeits both the formal treaty position and the stepped-up basis, exposing the heirs to capital gains tax on the full value at resale.

Believing the Americans' USD 15 million exemption applies to you directly. It does not. A bare nonresident gets a USD 60,000 exemption. The USD 15 million figure only ever reaches a Canadian through the proration in the treaty formula, scaled down by the US-situs share of the worldwide estate.

Forgetting that US shares held in a Canadian account are US-situs. Shares of US-incorporated companies are US-situs no matter where the account sits. A Canadian non-registered account full of US stocks is a US-situs holding for estate-tax purposes.

Forgetting the Transfer Certificate before selling US assets. Even with no tax due, the estate usually cannot sell or retitle the Florida condo or the US shares until the IRS issues a Transfer Certificate, which can take well over a year. Planning a quick post-death sale without accounting for that wait leads to a cash-flow surprise.

Section 11Checklist

• Inventory the US-situs assets: US real estate, shares of US-incorporated companies (even in a Canadian account), and US LLC interests.
• Compare the total to the USD 60,000 filing threshold. Above it, Form 706-NA is required.
• Estimate the worldwide estate, since the US-situs share of it drives the prorated exemption.
• File Form 706-NA within nine months of death, requesting an extension on Form 4768 in advance if more time is needed.
• Obtain an IRS Transfer Certificate before selling or retitling any US asset, and plan for a wait of a year or more.
• File even when the treaty reduces the tax to zero, to claim the position and secure the stepped-up basis.
• Engage a cross-border tax professional: the proration, the marital credit, and the basis interaction are technical and unforgiving.

Section 12FAQ

Must I file Form 706-NA if the treaty removes the tax? Yes. The treaty relief is claimed on the return, and filing also secures the stepped-up basis. Skipping it can leave the heirs with capital gains tax on the full value of the US assets when they sell.

Does the Americans' USD 15 million exemption apply to me? Not directly. A bare Canadian nonresident gets a USD 60,000 exemption. The USD 15 million only enters through the treaty's prorated credit, scaled by the share of your worldwide estate that is US-situs.

Do my US shares held in a Canadian brokerage account count? Yes. Shares of US-incorporated companies are US-situs regardless of where the account is held. Units of a Canadian mutual fund that holds US shares are generally not US-situs.

How long before the heirs can sell the Florida condo? Often a year or more. The estate usually needs an IRS Transfer Certificate before the condo can be sold or retitled, and the IRS typically takes 12 to 18 months to process Form 706-NA.

Can a surviving spouse defer the tax? The treaty's marital credit can effectively double the prorated credit when US-situs assets pass to the surviving spouse, deferring the tax. It is a deferral, not an exemption: the tax can arise at the spouse's later death. See our surviving-spouse guide.

Is this the same as the probate fee my province charges? No. US estate tax is a tax on US-situs assets; a provincial probate fee is a charge to administer your Canadian estate. They are separate questions; see our Canadian probate fees guide. The detailed US treaty mechanics are in our Article XXIX-B guide, and the return itself in our Form 706-NA guide.