Estate Handout that was not handed out at Land Rush Seminar Saturday Sept 6, 2008 -

David

You mentioned an estate handout that did not make the printer for the Ozzie Jurock Seminar on Saturday and that you would mail it out to anyone who wanted one.

Please send mine to:
XXXX
XXXXXXXXX
Calgary XXXX
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david ingram replies:

I did not mean mail as in snail mail.  However the following is now being sent to your email address.

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Hi David,

Last night someone told me that if a Canadian resident dies owning assets in the US in excess of $60,000, then all his world assets are taxable by the IRS. I find that hard to believe.

Thanks for your help.

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david ingram replies

Yep, the answer or what you have heard is true if it is real estate or other capital assets.  In addition, if you die owning more than $1,199,999 of US stock and you have NEVER been to the US or even North America if you live in France or any of the other 260 odd counties in the world, your estate is subject to US estate tax. (I admit the $1,200,000 number may have changed and be higher or lower now but spent 1/2 an hour looking and could not find a change - if anyone reading this knows of a change, please let me know - its origins were in the 1995 changes to the tax treaty)

Very FEW Securities people know this.

*** Remember, that the gain is in US dollars in the US and Canadian Dollars in Canada.  When calculating the profit on the stock, you would use the Canadian / US exchange rate at the time of the purchase for cost and then use the rate at the time of death for the deemed disposal

So, when it comes to that second home in Palm Springs (as an example).

You bought it for $1,000,000 US on Sept 1, 1998  That would cost you (in Canadian Dollars)  $1,525,700 Canadian.

You died on Sept 1, 2008 and the property is now worth $1,400,000 US after going up to $2,000,000 US and then losing 30% in the last two years.

For US estate tax purposes, the property will represent $1,400,000 in your estate.

For Canadian tax, the $1,400,000 US was worth $1,489,740 and there would be a Personal Property Loss of $35,960 which can be used to offset gains on the Whistler ski chalet.

Hope this helps.
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The following older question will help you out a bit.
 

Hi David,

 

Is it true that a Canadian citizen, who owns a house in US, who is not a resident or a citizen of US may be subject to US estate tax on all property held upon death of that Canadian citizen?

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david ingram replies:

The answer is yes but no tax is paid on the Canadian Property  The value of the Canadian Property is used to determine the amount of US estate tax on US form 706N and then the figure is prorated.

For instance for 2008, there is no estate tax on amounts under $2,000,000  In 2009, there is no tax on amounts over $3,500,000.

Depending upon the election and who wins and who controls the congress and senate, Obama plans or proposes to freeze estates exemptions at $3,500,000 and have a graduated estate tax that caps at 45%.

McCain plans to raise the estate exemption to $5,000,000 and have a maximum estate tax of 15% much more desirable to those with money.  However, in 2007,

Today - if you die tomorrow, the limit is $2,000,000 and you are taxable on amounts over that.

Let's pretend that you have a $300,000 US property and die on November 1, 2008.

You are subject to estate tax on $1,000,000.

Pretend that the estate tax is exactly $345,800 on the $1,000,000 which exceeds the  $2,000,000 exemption.
 
Your estate tax would be $34,580 which is 10% of the estate tax because your US property is 10% of your total estate.

The good news is that the  $34,580 can be used as a foreign tax credit against  and capital gains tax owed by the estate on the property.

So, as an example.  If you died in November and you had paid $100,000 for the property, your estate would have a deemed disposal and there would be capital gains tax on the $200,000 profit on the property.

If the rest of your income in the year was $100,000, $100,000 would be added to your taxable income and your Canadian estate would owe about $40,000 (depending upon the province).  However, you would claim the $34,580 as a foreign tax credit against the $40,000 And your Canadian tax would be reduced by much, if not all of the $34,580 by using Canadian forms T2209 and T2036.

Warning - there is also an Estate Tax in most states.  Most use the Federal rates for exemptions, etc. but some start from scratch.


Hope this helps.
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