Navigating U.S. estate and gift tax laws is crucial for Canadians with ties to the United States. Whether it’s through property ownership, residency status, or financial interests, understanding these U.S. estate and gift tax laws helps in making more informed decisions − and avoiding potential pitfalls and obstacles to financial growth and wealth management. There are different rules for U.S. citizens living in the U.S., U.S. Green Card holders living in the U.S., U.S. citizens and Green Card holders living in Canada, and Canadian residents who are non-residents of the U.S. That’s why it is imperative to partner with a qualified and experienced cross-border Canada-U.S. financial planning team. They will ascertain your Canadian and U.S. estate and tax planning implications while taking into account the impact of the Canada-U.S. Tax Treaty on all planning scenarios. Feel free to contact Cardinal Point to learn more and discuss your unique situation.
U.S. Taxation for U.S. Citizens and Green Card Holders Who Reside in Canada
The U.S. uniquely taxes its citizens on their worldwide income, regardless of their residence. Therefore, U.S. citizens living in Canada must file tax returns in both Canada and the U.S., declaring worldwide income to each country. However, the Canada-U.S. Tax Treaty generally facilitates a reduction in double taxation through foreign tax credits, ensuring taxes are primarily paid in the country where the income originates.
For instance, U.S. citizens in Canada receiving U.S. pensions can report a foreign tax credit for U.S. taxes paid to offset Canadian tax liability, eliminating double taxation. Additionally, U.S. citizens abroad may exclude certain foreign-earned income on their U.S. tax returns, although this exclusion limits the ability to claim foreign tax credits on that same income.
Green Card holders residing in Canada face similar tax obligations to U.S. citizens. Their status as U.S. residents for tax purposes continues until their Green Card is officially relinquished, which involves more than just allowing the Green Card to expire. Instead, a U.S. Green Card holder should continue to be deemed a U.S. tax resident until they receive an official notice from the U.S. Citizenship and Immigration Service that there has been a final administrative or judicial determination that their Green Card has been revoked or abandoned. Green Card holders may also benefit from treaty-based relief. But that could potentially impact their U.S. residency status and eligibility for future U.S. immigration benefits, such as renewing their Green Card or applying for U.S. citizenship.
U.S. Gift and Estate Tax for U.S. Citizens, Green Card Holders, and Domiciliaries
U.S. citizens, Green Card holders, and domiciliaries of the U.S. are liable for U.S. gift and estate taxes on their worldwide assets. Note that the legal definition of domicile for U.S. gift and estate tax purposes varies from the concept of U.S. tax residency, and is determined by various factors including length of stay in the U.S., property ownership, and family/social ties. A Green Card holder domiciled in Canada, intending to stay in Canada indefinitely, may not be subject to U.S. estate and gift taxes. However, they should still be considered a tax resident of the U.S. until their Green Card has been officially revoked or abandoned.
The U.S. integrates its gift and estate taxes, allowing a unified credit against taxes due on transfers during one’s lifetime or at death. U.S. citizens, Green Card holders, and domiciliaries are required to track their annual gifts throughout their lifetime. The per-person unified credit is as follows:
| Year | Lifetime Gift & Estate Tax Exclusion (USD) | Unified Credit (USD) |
| 2022 | $12,060,000 | $4,769,800 |
| 2023 | $12,920,000 | $5,113,800 |
| 2024 | $13,610,000 | $5,389,800 |
This means that in 2024, each person can gift or die with up to $13,610,000 USD of assets without having to pay federal U.S. gift or estate tax. Note that the Lifetime Gift & Estate Tax Exclusion is currently set to be significantly reduced to approximately $6-7 million, as of January 1, 2026. The unified credit represents the actual amount of federal U.S. gift or estate tax, calculated as:
| Taxable Gift/Estate | U.S. Federal Tax Payable |
| Less than $10,000 | 18% of such amount |
| $10,000–$20,000 | $1,800 + 20% of excess over $10,000 |
| $20,000–$40,000 | $3,800 + 22% of excess over $20,000 |
| $40,000–$60,000 | $8,200 + 24% of excess over $40,000 |
| $60,000–$80,000 | $13,000 + 26% of excess over $60,000 |
| $80,000–$100,000 | $18,200 + 28% of excess over $80,000 |
| $100,000–$150,000 | $23,800 + 30% of excess over $100,000 |
| $150,000–$250,000 | $38,800 + 32% of excess over $150,000 |
| $250,000–$500,000 | $70,800 + 34% of excess over $250,000 |
| $500,000–$750,000 | $155,800 + 37% of excess over $500,000 |
| $750,000–$1,000,000 | $248,300 + 39% of excess over $750,000 |
| Over $1,000,000 | $345,800 + 40% of excess over $1,000,000 |
Where both spouses are U.S. citizens, unused unified credit amounts can now be transferred to the surviving spouse via the Deceased Spousal Unused Exclusion (DSUE). A Form 706 United States Estate (and Generation-Skipping Transfer) Tax Return must be filed on-time to report and access the DSUE.
In addition to the unified credit, there is an unlimited exclusion for gifts made to a spouse who is also a U.S. citizen; an annual exclusion amount for gifts made to a spouse who is not a U.S. citizen; and an annual exclusion amount for gifts made to persons other than a spouse. The annual gift tax exclusion amount is determined per recipient, which means that annual gifts to any number of persons may be made without incurring a gift tax. Also, gifts made within the annual gift tax exclusion amount do not reduce the U.S. citizen’s, Green Card holder’s or domiciliaries’ unified credit. Gifts made above the annual exclusion amount generally require filing of a Form 709 United States Gift (and Generation-Skipping Transfer) Tax Return. The annual gift tax exclusion amounts are as follows:
| Year | Annual Exclusion for Gift Made to U.S. Citizen Spouse | Annual Exclusion for Gift Made to Non-U.S. Citizen Spouse (USD) | Annual Exclusion for Gift Made to Anyone Other Than Spouse (USD) |
| 2022 | Unlimited | $164,000 | $16,000 |
| 2023 | Unlimited | $175,000 | $17,000 |
| 2024 | Unlimited | $185,000 | $18,000 |
Please note that many U.S. states have implemented their own gift and estate tax regimes that are in addition to the federal U.S. gift and estate tax, and have lower exclusion amounts.
Also, the U.S. imposes a generation-skipping transfer tax, which applies when a gift bypasses the next generation (eg. grandparent gifts to a grandchild instead of parent gifts to a child).
U.S. Taxation for Canadians
Canadians spending significant time or owning property in the U.S. may be deemed U.S. residents for tax purposes under the “substantial presence test.” This test counts days spent in the U.S. over a three-year period, potentially subjecting individuals to U.S. tax on worldwide income. But those meeting this criterion can mitigate double taxation through credits and exclusions, or by proving a closer connection to Canada − thus avoiding U.S. resident status for tax purposes. For a more detailed discussion on this important topic, please see our blog Planning a move to the U.S.? Understand U.S. tax residency rules.
In regard to U.S. gift tax, Canadians who are not U.S. citizens or Green Card holders are only taxed on transfers of U.S.-situs assets that are real or tangible U.S. property. Intangible assets, such as U.S. investment securities, are generally exempt from U.S. gift tax for Canadians taxpayers. In a rule similar to that applicable to U.S. citizens, Green Card holders, and U.S. domiciliaries, a Canadian donor may claim the annual gift tax exclusion amount for a gift made to a spouse who is not a U.S. citizen or to other individuals, and gift tax doesn’t apply to gifts made to a spouse who is a U.S. citizen. However, unlike the case for U.S. citizens, Green Card holders, and U.S. domiciliaries, there is no unified credit against U.S. gift taxes, and U.S. gift taxes are not covered in the Canada-U.S. Tax Treaty. Therefore, careful planning is required before Canadians make significant cross-border gifts.
U.S. Estate Tax for Canadians
Canadians who are not U.S. citizens or Green Card holders, but own U.S.-situated assets, are subject to U.S. estate tax on those assets at death. U.S.-situated assets are a broader category than the assets subject to U.S. gift tax for Canadians, and include U.S. real estate, U.S. tangible property (eg. furniture and automobiles), U.S. pension plans, and certain U.S. investments (eg. U.S. securities and mutual funds) − even if such assets are held in a registered account such as an RRSP, RRIF, or TFSA. However, assets like U.S. bank accounts, bonds and U.S. Treasury Bills, Canadian mutual funds investing in U.S. investments, and life insurance proceeds are typically exempt from U.S. estate tax for Canadians. Note that the value of any non-recourse debt can be deducted from the value of U.S.-situated assets in calculating U.S. estate tax.
Under the Canada-U.S. Tax Treaty, Canadian residents can claim a prorated unified estate tax credit, potentially eliminating U.S. estate tax liabilities if certain conditions are met. The Canada-U.S. Tax Treaty provides several other mechanisms to alleviate U.S. estate tax, including a marital estate tax credit for U.S.-situated assets left to a surviving spouse; a foreign tax credit that applies any U.S. estate tax paid against Canadian taxes payable in the year of death to avoid double taxation; relief for small estates worth less than $1.2M USD (unless the estate consists of U.S. real property or a U.S. partnership/corporation); and a deduction against U.S. estate tax for donations of U.S.-situated property to a U.S. charity. Similar to the DSUE, a Form 706 United States Estate (and Generation-Skipping Transfer) Tax Return must be filed on time to report eligible estate taxes and access tax relief under the Canada-U.S. Tax Treaty.
The application of the Canada-U.S. Tax Treaty varies for U.S. citizens residing in Canada compared to other Canadians. U.S. citizens may not benefit from certain treaty provisions, such as pro-rated estate tax credits, as they are already entitled to full U.S. credits. Furthermore, the treaty’s marital credit provisions differ for U.S. citizens, reflecting the unlimited marital deduction available under U.S. law.
Conclusion
For Canadians with personal or financial ties to the U.S., understanding the impact of U.S. estate and gift tax laws is imperative. The complexities of these laws necessitate professional advice from experts familiar with both Canadian and U.S. tax systems. Proper planning and advice are crucial to navigate the tax and estate implications effectively, ensuring full compliance while optimizing tax and estate outcomes across borders. Contact Cardinal Point to discuss your unique situation and learn more.