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Do Canadians Pay Tax on a U.S. Inheritance?

05.13.25 // Markets & Investing // Blog Article //

Written by Carson Hamill CIM®, CRPC®, FCSI® Associate Portfolio Manager and Assistant Branch Manager & Dean Moro BComm, CIM®, Associate Portfolio Manager

Inheriting from a loved one in the U.S.? Before you think about what to do with the money, make sure you know what to do about the taxes—especially if you're living in Canada.

The good news: Canada generally does not tax inheritances and it does not impose an inheritance tax. But the full picture is more complex. Between foreign asset reporting, cross-border estate rules, and tax on future gains, and income distributions from trusts, there’s a lot of Canadians need to be aware of.

Canada Generally Doesn’t Tax Inherited Wealth

If you're a Canadian resident who inherits cash, property, or investments—even from outside the country—there may not be an immediate tax bill. Any income rather than capital distributions from an estate may, however, be considered income. The value of the inheritance that represents a capital inheritance should not count as income and does not need to be reported as such to the Canada Revenue Agency (CRA).

U.S. Estate Tax Targets the Estate—Not You

The United States doesn’t tax beneficiaries directly. Instead, it may levy a federal estate tax on the deceased’s estate before distributing assets.

For 2025, U.S. estate tax only applies if the estate exceeds $13.99 million USD. That means most estates will not trigger U.S. estate tax before the assets reach you. However, any taxable gifts that the U.S. person descendent made during their lifetime may reduce the amount they can pass away with without being subject to U.S. estate tax. Note that absent any congressional action, the limit is set to halve as of January 1, 2026, to $5,000,000, indexed to inflation from 2018 onwards.

Think You're in the Clear? Not Quite: Why Form T1135 Matters

Even if you don’t owe end up owing tax on the inheritance, Canada still wants to know about certain foreign assets.

If you inherit U.S. real estate, stocks, cash in a U.S. bank account, or other foreign property with a cost basis in excess of CAD $100,000, cumulatively, you must file Form T1135 (Foreign Income Verification Statement) each year you hold the assets.

Form T1135 is a reporting requirement only—it doesn’t generate a tax bill. But failing to file can result in steep penalties, even if the inheritance earns no income.

The Real Tax Hit Comes Later: Income and Capital Gains

Once you take ownership of an inheritance, any income it generates or gains you realize are subject to Canadian tax.

Example:

Emma, a Canadian resident, inherits a Florida condo and $150,000 in U.S. stocks from her late aunt.

  • The inheritance itself is generally not taxable.
  • However, Emma must file Form T1135 because the cost basis of the specified foreign property exceeds CAD $100,000.
  • If she earns rental income from the condo or dividends from the stocks, she must report that income on her Canadian tax return.
  • If she later sells the condo, she will owe Canadian capital gains tax on the increase in value from the date of her aunt’s death.
  • Even though Emma is a Canadian resident, renting out and subsequently selling real property located in the U.S. will also trigger U.S. tax obligations, including potential withholding taxes and US federal tax return filings.

What If You’re a U.S. Citizen Living in Canada?

If you're a U.S. citizen or green card holder living in Canada, additional U.S. tax and reporting rules still apply—even if you’ve lived in Canada for years.

You may be required to file:

  • Foreign Bank Account Report (FBAR) for accounts exceeding $10,000 USD
  • Form 3520 if you receive gifts or inheritances from foreign persons, including non-U.S. persons and trusts.
  • Ongoing U.S. tax returns on worldwide income, including income from inherited assets

While Canada won’t tax the inherited amount, you’ll need to coordinate your Canadian and U.S. filings carefully. This is where a qualified cross-border tax advisor becomes essential.

Currency Conversion Rules Apply

All foreign amounts—asset values, income, and proceeds—must be converted to Canadian dollars for reporting purposes. Use the Bank of Canada exchange rate effective on the date of the transaction, sale, or death, as applicable.

Cross-Border Estate Planning: Don’t Leave It Too Late

Whether you're Canadian with U.S. family ties, or an American living in Canada, proactive cross-border estate planning is crucial.

It can help reduce tax exposure, simplify compliance, and prevent legal or logistical burdens on your heirs—especially if the estate includes:

  • U.S. real estate
  • IRAs or other U.S. retirement accounts
  • Trusts with cross-border beneficiaries
  • Dual citizenship or residency issues
  • Large U.S. investment portfolios

Bottom Line: Generally, No Tax at First, But Don’t Get Comfortable

Receiving an inheritance from the U.S. might feel simple—but the tax and reporting responsibilities can get complicated fast. Between Form T1135, cross-border income reporting, and estate rules, it's essential to get advice before you make assumptions.

Don’t let reporting slip through the cracks. Work with a qualified cross-border financial team to ensure your obligations are covered—and your inheritance is protected.

Next Steps

If you’re planning on moving to Canada and need assistance with your investments, estate planning, and portfolio management, please contact Snowbirds Wealth Management as we specialize in cross-border financial planning and wealth management. We work closely with experienced cross-border lawyers and accountants to ensure you have a team behind you.

About Snowbirds Wealth Management

Gerry Scott is a portfolio manager and founder of Snowbirds Wealth Management, an advisory firm focussed on the cross-border market. Together with Dean Moro and Carson Hamill, associate portfolio managers with Snowbirds Wealth Management, they provide investment solutions for Americans living in Canada, and Canadians residing in the United States. Licensed in both Canada and the US, they provide tailored investment solutions to minimize the tax burden when moving assets across borders.To schedule an introductory call, please click here.

Statistics and factual data and other information are from sources RJLU believes to be reliable but their accuracy cannot be guaranteed. It is for information purposes only and is not to be construed as an offer or solicitation for the sale or purchase of securities nor is it meant to replace legal, accounting, taxation or other professional advice. We are not tax advisors and we recommend that clients seek independent advice from a professional advisor on tax-related matters. The information is furnished on the basis and understanding that RJLU is to be under no liability whatsoever in respect thereof.

Raymond James (USA) Ltd. advisors may only conduct business with residents of the states and/or jurisdictions in which they are properly registered. Investors outside the United States are subject to securities and tax regulations within their applicable jurisdictions that are not addressed on this site. Raymond James (USA) Ltd. is a member of FINRA/SIPC.

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