Canadian Resident Inheriting From a US Estate: What Ontario Heirs Owe

Being named in the estate of someone who lived in the United States can raise questions that an ordinary Ontario estate does not. Two countries may have rules about the same money, and each has its own paperwork.

This article explains the Canadian side in general terms and shows where you will need to ask more questions. US estate tax and the rules for moving funds are not covered here, because they depend on US law and the facts of the estate.

Two legal systems may be involved

If the person who died lived or owned property in the United States, a US estate may be involved alongside an Ontario one. The rules for the US side, including any US estate tax, are for the US executor and US advisers to explain. Do not assume Ontario rules apply to it.

In Ontario, an estate trustee carries out the wishes set out in the will, winds up the deceased's affairs, pays taxes, bills and other debts, and then distributes the estate according to the will. How a US estate is handled may differ, so it is worth confirming the details with the US executor and a lawyer.

How Canada generally treats what you receive

The CRA lists most gifts and inheritances among the amounts that are not reported or taxed. That is a general statement, so ask an accountant to confirm how it applies to your particular inheritance.

For people who die as Canadian taxpayers, the deceased is considered to have sold all their property just before death. Any capital gain or loss is reported on the deceased's final return, not by the beneficiary. Whether anything like this applies to a US decedent is a question for a cross-border tax adviser.

Income earned by an estate after death is treated differently from the inheritance itself. An estate or trust uses a T3 slip to report income it allocates to beneficiaries, and in most cases the allocated amounts are included in the beneficiary's income. Estate income paid or payable to non-resident beneficiaries is reported on an NR4 slip instead. A US estate will use its own paperwork, so ask what slips or statements you will receive and keep them for your accountant.

Receiving the funds

The questions worth asking are practical rather than legal. Ask the executor or the estate's lawyer how and when you will be paid, in what currency, what documents the bank will need, and whether anything will be held back for taxes or debts.

• Ask for a written statement of what the estate is distributing to you and what has been deducted.
• Ask whether the executor will pay by cheque, wire or another method, and keep the records.
• Tell your Canadian bank early that a large transfer is coming, since it may ask where the money came from.
• If the estate also needs an Ontario probate application, you are entitled to a copy of the application form before it is filed with the court if you are entitled to a share.

Where an Ontario certificate is applied for, the Estate Administration Tax is paid by the estate, not by the beneficiaries or the estate representative. If no probate certificate is applied for and issued, no Estate Administration Tax is due.

Declining an inheritance, and other benefits you receive

Some people consider refusing an inheritance. For Canadian tax purposes, a valid disclaimer made in favour of no one means the person is treated as never having acquired the interest. Directing the property to a particular person is treated as an assignment, not a disclaimer. US law has its own rules on this, so get advice in both countries first.

If you receive ODSP, you must report to ODSP any income or other money that you or anyone in your family receives, including a windfall such as an inheritance. This includes any inheritance you receive or expect to receive, which you must report to your caseworker.

Inherited money is generally treated as income in the month it is received, and any amount still held the following month is treated as an asset. You and each family member can receive up to $10,000 in total in a 12-month period from gifts, inheritances, trust and life insurance payments and lottery winnings without affecting income support. Amounts above that count as income in the month received, unless they are used for an approved disability-related item or service. There are exceptions: an inherited trust set up in a will is not considered income, and up to $100,000 of a trust funded by an inheritance or life insurance may be exempt as an asset. Inherited property or possessions are treated as assets, not income, and some are exempt, such as a home you live in or a car used as your primary vehicle.

What to do next

• Get the name and contact details of the US executor and the estate's lawyer.
• Ask for a copy of the will or the portion that names you, and a written estimate of what you will receive.
• Speak to an accountant who handles Canada and US tax before you accept or spend the money.
• Speak to an Ontario wills and estates lawyer if an Ontario court step is needed or you are unsure of your rights.
• Keep every statement, slip and bank record for your next Canadian tax return.

Frequently asked questions