US Estate Tax for Canadians: The $60,000 Trap and Treaty Relief

The $60,000 default

US estate tax applies to the worldwide estate of US citizens and domiciliaries, but to only US-situs assets of nonresident aliens (NRAs) — people who are neither US citizens nor domiciled in the US at death. For NRAs, the code (IRC §2102(b)(1)) allows a unified credit of just $13,000, which shelters exactly $60,000 of taxable estate. Everything above that is taxed at the regular graduated estate tax rates, topping out at 40%.

Crucially, the 2025 "One Big Beautiful Bill Act" — which permanently raised the US-person exemption to $15 million for 2026 — did not touch the $60,000 NRA figure. It is statutory, unindexed, and unchanged.

What counts as US-situs? The big three:

• US real estate (your Florida condo, Arizona house).
• Stock of US corporations — including US-listed ETFs. A Canadian holding VTI in a taxable account holds US-situs stock.
• Debt obligations of US persons (with exceptions — US bank deposits are generally excluded, a small mercy).

Canadian mutual funds, Canadian real estate, and cash in Canadian banks are not US-situs. But the moment an NRA's US-situs pile crosses $60,000, the estate representative must file Form 706-NA — the US estate tax return for nonresident non-citizens.

Treaty relief: Article XXIX B

This is where Canada's treaty does its heavy lifting. Article XXIX B of the US–Canada income tax treaty (the estate provisions live inside the income tax treaty — unusual, but that's how it is) lets the estate of a Canadian resident who wasn't a US citizen claim the greater of:

1. The ordinary NRA credit ($13,000 / $60,000 exemption), or
2. A pro-rata share of the full US unified credit, computed as:

> Treaty credit = Full US unified credit × (US-situs assets ÷ Worldwide assets)

In 2026 the full credit shelters $15 million. So if a Canadian dies with a $4 million worldwide estate including a $600,000 Florida condo (15% US-situs), the treaty credit shelters 15% × $15M = $2.25 million of US-situs value — far more than the $600,000 condo. The entire US estate tax bill disappears.

Two more treaty gifts worth knowing:

• Small estate exemption. If the Canadian decedent's worldwide gross estate doesn't exceed $1.2 million, a limited exemption can shelter US securities and certain other US property outright.
• Canada credits the US tax. The treaty lets Canada give a foreign tax credit for US estate tax paid against the Canadian deemed-disposition tax (Canada taxes unrealized capital gains at death), preventing full double taxation.

The catch: you must file to claim it

Treaty relief is claimed, not granted. The executor must:

1. File Form 706-NA within 9 months of death (a 6-month extension is available).
2. Disclose the decedent's entire worldwide estate to the IRS — yes, all of it, including the Canadian assets the US has no right to tax. The pro-rata formula can't be computed without it.
3. Attach a treaty-based return position statement invoking Article XXIX B and showing the calculation (many preparers also attach Form 8833).

Miss the filing, and the estate never claimed the treaty benefit — the IRS will happily apply the bare $60,000 exemption. There are late-relief procedures, but they're discretionary and expensive. This is the single most important sentence in this article: file the 706-NA even when you think no tax is owed.

Don't forget the Canadian side

Canada has no estate tax, but it has something close: deemed disposition at death. You're treated as having sold everything at fair market value the moment before death, and the capital gains (50% inclusion rate) are taxed on the final return. The US estate tax and the Canadian deemed-disposition tax are different taxes on the same event, and the treaty credit mechanism is what keeps you from paying both in full. Coordinating the two — including which assets get stepped-up basis where — is genuine cross-border planning territory.

Planning moves worth discussing with a professional

• Track your US-situs footprint. Brokerage statements showing US ETF holdings count. Many Canadians don't realize how much US-situs property they hold.
• Consider ownership structures for US real estate — cross-border trusts and other vehicles exist, each with trade-offs (a Canadian corporation holding US real estate, for instance, creates its own US tax problems).
• Life insurance can fund an expected US estate tax bill where the treaty doesn't fully cover it.
• Review beneficiary designations and joint ownership — US-situs treatment can turn on how title is held.
• Keep a worldwide balance sheet. If the treaty formula ever needs to be computed, your executor will bless you for it.