Prev Article
Next Article

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—from a U.S. person directly via will, there may not be an immediate tax bill. Any income rather than capital distributions from an estate may, however, may be considered taxable. 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). Note that if a Canadian beneficiary receives an inheritance from a U.S. trust, additional tax implications may apply.

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.

U.S. estate tax typically applies if the total value of a U.S. citizen or U.S. domiciled person’s estate exceeds the lifetime estate and gift tax exemption amount which is $13.99 million USD for 2025. That means most U.S. estates will not trigger U.S. estate tax before the assets reach you. However, any taxable gifts that a U.S. person makes during their lifetime does reduce their lifetime exemption amount which they can pass away with and not be subject to U.S. estate tax. Additional U.S. state tax implications may also apply, such as state inheritance or estate tax, as well as probate fees so it’s important to consider the local state tax implications as well.

Updated Estate Tax Exemption Under OBBBA

As of 2026, the federal estate tax exemption has been permanently increased to $15 million per individual, with adjustments for inflation in subsequent years. For married couples that are both U.S. citizens, this means a combined exemption of $30 million. This change is a result of the One Big Beautiful Bill Act (OBBBA), which overrides the previously scheduled “sunset” under the Tax Cuts and Jobs Act (TCJA) that would have reduced the exemption to approximately $7 million. As a result, the significant reduction previously anticipated will no longer occur, providing much higher exemption limits for estates moving forward.

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 may need to 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 of up to CAD $2,500 per year, 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, U.S. tax and reporting rules still apply, including U.S. estate tax—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
  • U.S. estate and gift tax returns if you are subject to U.S. estate tax or make a taxable gift.

While Canada may not tax an 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.

Prev Article
Next Article