Direct Equity Holdings
Shares of US corporations (e.g., Apple, Microsoft) are considered US situs assets regardless of whether they are held in a Canadian brokerage or an RRSP/TFSA.
The IRS Doesn't Care If You're Canadian.
Many Canadian investors operate under the delusion that US estate taxes only apply to American citizens. In reality, any "US situs" asset held at the time of death can trigger a tax liability of up to 40%. While the Canada-US Tax Treaty provides some relief, relying on it without calculating your worldwide estate value is a high-stakes gamble.
The $13.61 Million Myth
For 2024, the US federal estate tax exemption sits at $13.61 million. However, for Canadians, this isn't a flat exemption. You only receive a pro-rated portion of this credit based on the ratio of your US assets to your worldwide estate. If your global assets—including your primary residence in Toronto or Vancouver—exceed this threshold, the IRS expects a filing.
Even if no tax is ultimately owed due to treaty credits, the administrative burden of filing Form 706-NA is significant. Failure to report can result in frozen brokerage accounts, preventing your heirs from liquidating positions during a market downturn. This is why understanding T1135 compliance is only half the battle.
US Real Estate
Vacation homes in Florida or Arizona are primary targets for the IRS. These physical assets are the easiest for the US government to lean against if taxes are unpaid.
US-Listed ETFs
Holding VOO or VTI? These are US-domiciled. To avoid situs exposure, many investors pivot to Canadian-listed ETFs that hold US stocks internally.
"The biggest mistake is assuming your Canadian residency grants you immunity from US federal tax law."
Mitigation Strategies
If your worldwide estate is approaching the $10M+ mark, defensive structuring is mandatory. Using Canadian corporations to hold US securities can sometimes shield assets from estate tax, but this introduces "Passive Income" tax complications with the CRA.
Another common tactic is shifting to Canadian-domiciled wrappers. A Canadian mutual fund or ETF that tracks the S&P 500 is generally not considered a US situs asset, even though it owns US companies. This simple switch can eliminate the need for complex treaty filings upon death.
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