CANADA Law and Practice Contributed by: Ian M Hull, Suzana Popovic-Montag and Nick Esterbauer, Hull & Hull LLP
12. Cross-Border Succession Planning 12.1 Taxation of Cross-Border Estates and Transfers Effective cross-border succession planning in Canada requires co-ordination between Canadian tax obliga- tions with foreign tax systems to minimise double taxation. Residents With Property Located Outside Canada For Canadian residents who own property outside Canada, it is important to recognise that the deemed disposition of capital property that occurs on death applies to worldwide assets, including property locat- ed abroad. Property located outside of Canada may also be sub- ject to tax obligations in the jurisdiction where it is held, although tax treaties may provide some relief. For example, in 2025, under the Canada-US Tax Treaty, no US estate tax is payable if a Canadian’s worldwide assets are below USD13.99 million, although a non- resident estate tax return must still be filed. Canada currently has tax treaties with more than 90 countries. Where a Canadian owns US real property, Canadian federal tax may also be offset through foreign tax credits where US estate tax is attributable to a US situs asset that is also subject to Canadian capital gains tax under the deemed disposition rule. The foreign tax credit is generally available only for income taxes paid to a country with which Canada has a tax treaty and in which the individual is resi- dent at the time of disposition. However, for income taxes relating to real property located outside Canada, the credit may also be claimed for taxes paid to the country where the property is situated, regardless of whether that country has a tax treaty with Canada.
Non-Residents with Property Located Inside Canada For non-residents who own property in Canada, fed- eral, provincial, and treaty laws impact testamentary dispositions. Although Canada does not impose an inheritance tax, non-residents are subject to Canadian income tax on capital gains arising from the deemed disposition of taxable Canadian property. Before distributing estate property, the estate’s legal representative must comply with the clearance cer- tificate requirements articulated in Section 116 of the Income Tax Act, and remit any taxes owing. Estate Distributions to Non-Resident Beneficiaries Estate distributions to non-resident beneficiaries may be subject to withholding tax. The estate rep- resentative must determine the applicable rate of the withholding tax on the portion of the estate or trust income payable to the non-resident beneficiary. If Canada does not have a tax treaty with the benefi- ciary’s country of residence, tax must be withheld at 25% of the gross payment. However, tax treaties may reduce this rate. For example, the Canada-US Tax Treaty reduces the withholding rate on certain income distributions to US resident beneficiaries to 15%. Transfers from Non-Residents to Canadian Residents Transfers of capital property from non-residents to Canadians are generally taxed as if the parties were unrelated, regardless of any family relationship, and no tax-deferred rollover is available. Rollovers are also unavailable where one or both parties are not resident in Canada, for tax purposes.
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