I got a call last spring from a client in tears. Her mother had passed away in Florida, leaving her a condo and some savings. She thought the worst was over—until the IRS sent a bill for U.S. estate tax, and then the CRA deemed the inheritance taxable income in Canada. Between the two countries, she was looking at losing nearly half of what her mom worked a lifetime to build. Stories like this are more common than you’d think, especially for Canadian families with ties south of the border.
Cross-border inheritance tax isn’t one single tax—it’s a tangle of rules from both sides that can catch you off guard if you’re not prepared. The good news? With the right planning, you can minimize or even eliminate much of the tax hit. Cross border tax advisor Toronto team at SAL Accounting sees these situations all the time, and this guide pulls together the practical steps that actually make a difference in 2026.
How Inheritance Is Taxed Differently in Canada vs. the U.S.
Canada and the U.S. handle inheritance in completely opposite ways, which is where most of the confusion (and double taxation risk) comes from.
Canada: No Inheritance or Estate Tax—But “Deemed Disposition”
When someone passes away in Canada, the CRA treats it as if the deceased sold all their assets at fair market value the day before death. Any capital gains are taxed on their final return. The heirs receive the assets with a stepped-up cost base, so they usually don’t pay tax when they eventually sell.
Example: Mom owns a cottage worth $800,000 (bought for $200,000). At death, $600,000 capital gain is taxed on her final return (at her marginal rate). Heirs inherit it at $800,000 cost base—no further tax unless it appreciates more.
U.S.: Federal Estate Tax (Plus Possible State Taxes)
The U.S. has a direct estate tax on worldwide assets for U.S. citizens/residents and U.S.-situs assets for non-residents. In 2025, the federal exemption is around US$13.61 million per person (adjusted for inflation), so most estates escape federal tax. But for non-U.S. citizens owning U.S. property (like a Florida condo), the exemption drops to just US$60,000.
Common U.S. assets that trigger this:
- U.S. real estate
- U.S. stocks/bonds (even in a brokerage account)
- U.S. business interests
Rates climb fast—up to 40% on amounts over the exemption.
The Big Pain Point: Double Taxation Risk
A Canadian inheriting U.S. assets can face:
- U.S. estate tax on the fair market value (if over US$60,000 for non-residents).
- Canadian capital gains tax on the “deemed disposition” in the deceased’s final return (if the deceased was Canadian).
- Potential Canadian income tax if the inheritance is treated as income (rare, but happens with some RRSPs/IRAs).
I had a client inherit a U.S. stock portfolio worth $450,000 from her American aunt. The U.S. estate paid tax on it, then Canada taxed the deemed gain on the aunt’s Canadian return (she was a dual citizen). Without planning, over 50% went to taxes.
Practical Strategies to Minimize Cross-Border Inheritance Tax
Here’s what actually works, based on cases we’ve handled:
