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November 4, 2024

Cross-Border Update

Q4, 2024—"Understanding US Estate Tax Filing Deadlines for Canadians Owning Property in the United States"

As more Canadians invest in US real estate, it has become increasingly crucial that they understand the complexities of US estate tax regulations. One essential aspect that Canadian property owners must pay attention to is estate tax filing deadlines—and the implications of failing to comply.

US Estate Tax Basics

The United States imposes an estate tax on the transfer of property at death, which applies to both U.S. citizens and noncitizens owning US assets. For Canadians, this means any property—including vacation homes and rental properties—located in the United States is subject to estate tax.

Filing Deadlines

The estate tax return, known as Form 706-NA (US Estate (and Generation-Skipping Transfer) Tax Return), must be filed within nine months of the date of death, although an automatic six-month extension can usually be obtained if requested before the nine-month deadline expires.  It’s important to note that these are hard deadlines; failing to timely file can lead to significant penalties and interest and even the denial of any US-Canada tax treaty benefits otherwise available.

Challenges for Canadians

In many cases, a Canadian executor or trustee handling the Canadian estate is not aware of the requirements to file a US estate tax return and the associated deadlines. The executor’s or trustee’s Canadian attorney may not be aware of the US requirements either. This can create a very difficult situation, particularly if the executor or trustee learns of the US requirements after the deadlines have passed. In that case, every effort should be made to get the tax filings done as quickly as possible to limit the damage. Making these filings quickly can also be challenging because determining the value of US property for estate tax purposes can be complex, especially with fluctuating real estate markets.

Navigating the Process

Given these complexities, Canadians owning US property should work with tax professionals familiar with US laws that apply to Canadians. They can assist in evaluating estate plans while also ensuring timely filing of necessary tax returns.

Conclusion

Canadians with real estate investments in the United States need to be well informed about estate tax filing requirements and deadlines. Proactive planning not only ensures compliance with US tax laws but can also mitigate the financial impact on heirs. By staying informed and seeking guidance, Canadian property owners can navigate the intricacies of cross-border real estate ownership effectively.

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