Tax on U.S. or Foreign Property When an Ontario Resident Dies

Many Ontarians own a Florida condo, U.S. stocks or a foreign bank account. When the owner dies, the estate trustee (executor) faces tax questions in two countries at once. Canada taxes the deceased on the property as part of the final return, and another country may have its own claim.

This article explains the Canadian side clearly and shows where the U.S. side fits in. U.S. estate tax thresholds, forms and credits are set by U.S. law and change over time, so they are not set out here. Treat this as a map of the questions to ask a cross-border lawyer or accountant.

Canada treats death as a sale

On death, a person is considered to have sold all their property just before death. Capital property is deemed disposed of immediately before death at fair market value, and the gain or loss is the proceeds minus the adjusted cost base. This is reported on Schedule 3 of the final return, with the taxable amount on line 12700.

For a U.S. condo or U.S. stocks, this means the estate trustee needs a date-of-death value and the original cost. Gather purchase records, brokerage statements and any valuation or appraisal. Foreign currency may need to be converted, and the details of doing that are worth confirming with an accountant.

What goes on the Canadian returns

The legal representative files the returns, and a final T1 return must be filed for every person who dies. If the deceased did not file a T1 for any earlier year, those returns must also be filed. Ontario provincial tax is calculated on Form 428 in the T1 package.

The legal representative may elect out of the automatic spousal rollover. Whether to do so depends on the whole picture, including losses available and any foreign tax, and is a good question for an accountant.

Where U.S. estate tax fits in

The United States has its own estate tax system. Whether it applies to a non-U.S. person who owned U.S. property, such as a Florida condo or shares of U.S. companies, depends on U.S. law, including the value of the property and any applicable treaty. The current thresholds, forms and filing deadlines are not covered here, and you should not assume that no filing is needed.

Whether tax paid to another country on the same property can be taken into account in Canada depends on the facts, so it is worth confirming with a cross-border accountant. Whether a credit is available, and how much, depends on what was paid, to whom and for what year. This is a core question for a cross-border accountant.

• Ask whether U.S. property is likely to require a U.S. return and who must sign it.
• Ask whether a U.S. process is needed before the property can be sold or transferred.
• Ask how any U.S. tax will be claimed on the Canadian return.
• Keep copies of every U.S. document, notice and payment.

Ontario estate administration tax and foreign assets

Ontario estate administration tax is charged on estate certificates applied for on or after January 1, 2020. There is no tax if the estate is $50,000 or less, and above that the tax increases with the value of the estate; Ontario's own example is that a $240,000 estate owes $2,850. An Estate Information Return is due within 180 calendar days after the certificate is issued, even if no tax is payable.

The value of the estate for this purpose includes Ontario real estate (less mortgages or liens), bank accounts, investments and RRSPs, RRIFs or TFSAs without a beneficiary designation. It excludes jointly owned assets that pass automatically to the surviving owner, and assets with a named beneficiary. Whether a particular foreign asset counts, and whether a foreign court process is also needed for it, depends on the asset and is worth confirming with a lawyer.

Deadlines, penalties and protecting yourself

If death occurred between January 1 and October 31, the final return is due April 30 of the following year; if it was between November 1 and December 31, it is due 6 months after death. If the deceased or their spouse or common-law partner carried on a business, the due date can be June 15 of the following year, but any balance owing is still due on the regular payment date.

A late final return can attract a penalty of 5% of the balance owing, plus 1% for each full month late, to a maximum of 12 months, along with compound daily interest. The CRA can cancel or waive penalties and interest, though not the tax itself, in extraordinary circumstances such as a death in the immediate family, but meeting the criteria does not guarantee relief.

Before distributing property, the legal representative must obtain a clearance certificate. Distributing without one can make the representative personally liable for unpaid amounts up to the value distributed. Request it only after returns are filed and assessed and taxes are paid or secured. Later-discovered assets need another certificate.

What to do next

• List every foreign asset: property, brokerage accounts, bank accounts and pensions.
• Collect date-of-death values and original cost records.
• Notify the CRA of the death as soon as possible.
• Hire or consult a cross-border accountant or lawyer before selling or transferring U.S. property.
• File the final T1 on time and consider the optional returns.
• Wait for the clearance certificate before final distributions.

Frequently asked questions