US Estate Tax for Canadian Residents: the Treaty Credit and the USD 1.2 Million Rule

Published 30 October 2026 by Steffan Kharmaaiarvi, founder

Canadian clients often hold US shares and US-listed ETFs directly. At death those are US-situs assets, and for someone who is neither a US citizen nor a US resident, US estate tax starts on US-situs assets above USD 60,000. For most Canadian residents the Canada–US treaty removes or reduces the tax, but the relief depends on the size of the worldwide estate, which a portfolio statement does not show. This note sets out the rules, a worked example and the points to check. It is decision support, not tax or legal advice.

The US rule for non-residents

• What is taxed. US-situs assets: shares of US companies, including US-domiciled ETFs, and US real property. A Canadian-listed ETF that holds US shares, or an Irish UCITS fund, is not US-situs.
• The threshold. A non-resident's estate gets a credit of USD 13,000, which covers the tax on the first USD 60,000 of US-situs assets (Form 706-NA instructions, IRC §2102).
• The rates. Graduated under IRC §2001(c), reaching 40% on amounts over USD 1,000,000.

What the treaty changes

Article XXIX-B of the Canada–US tax convention gives a Canadian resident three reliefs:

• Small estates, paragraph 8. If the worldwide gross estate is USD 1.2 million or less, the US may tax only property whose gain it could tax under Article XIII, essentially US real property. US shares and funds fall outside.
• Pro-rated unified credit, paragraph 2. The estate gets the greater of the US unified credit multiplied by the share of the worldwide gross estate that is US-situs, and the USD 13,000 non-resident credit. For 2026 the basic exclusion amount is USD 15,000,000 and the unified credit USD 5,945,800 (Form 706 instructions).
• Marital credit, paragraphs 3 and 4. A further credit can apply when property passes to a surviving spouse, subject to conditions.

A worked example

A Canadian resident holds USD 2,000,000 of US shares and US-listed ETFs. The tentative US estate tax on that is USD 345,800 plus 40% of the USD 1,000,000 above USD 1,000,000: USD 745,800. What the treaty does depends on the worldwide estate. Round illustrative figures:

In the smaller estate the credit is more than the tentative tax, so nothing is due. A third case: USD 500,000 of US shares in a worldwide estate of USD 1,100,000 falls under the small-estate rule and is not taxed at all. For contrast, a resident of a country with no estate-tax treaty would face USD 155,800 of tentative tax on the same USD 500,000, less the USD 13,000 credit: USD 142,800.

Common mistakes

• Assuming the treaty exempts everyone. Large estates with a small US share still pay, as the first row shows.
• Using net worth. The treaty uses the worldwide gross estate, before debts. It includes assets clients forget: the home, registered plans and life insurance they own.
• Missing the domicile. A US-listed ETF is US-situs; a Canadian-listed one holding the same shares is not. The same comparison drives the US versus Irish ETF question for other residents.
• Forgetting the return. A Form 706-NA is generally required when the US-situs gross estate exceeds USD 60,000, including to claim treaty relief when the tax comes to nil.

How Borderfolio for Advisors handles it

• US-situs exposure. The Cross-Border page totals US-situs holdings in USD against the USD 60,000 non-resident threshold.
• The treaty for Canadian residents. The small-estate rule is applied first, then the pro-rated unified credit against the tentative tax, using the client's total wealth on file as the worldwide estate. The finding shows the tentative tax, the treaty credit and the estimated tax.
• No guess when wealth is incomplete. Total wealth is the portfolio plus other assets you record. If any part is unknown, the credit is not computed and the finding says why.
• In scenarios. A proposal shows US-situs exposure for the current and proposed portfolios side by side.

Where the estimate stops

• The gross estate is approximated by total wealth on file, which nets liabilities. Where debts are material, the real gross estate is larger, the real credit smaller, and the small-estate rule may not apply.
• The marital credit is not applied, and neither are Canada's deemed disposition at death or the Canadian credit for US estate tax.
• Other estate-tax treaties are not applied; other residences see the USD 60,000 screen. State estate taxes are not considered.

Frequently asked questions

Do Canadians pay US estate tax on US stocks?

They can. US shares and US-domiciled ETFs are US-situs assets. Under the Canada–US treaty an estate with a worldwide gross estate of USD 1.2 million or less is not taxed on them, and larger estates get a share of the US unified credit in proportion to their US-situs assets.

How is the treaty credit calculated?

It is the greater of the US unified credit multiplied by the US-situs share of the worldwide gross estate, and the USD 13,000 non-resident credit. With the 2026 unified credit of USD 5,945,800, USD 2 million of US assets in a USD 50 million estate gives a credit of USD 237,832.

Are Canadian-listed ETFs that hold US shares subject to US estate tax?

Generally no. A Canadian-listed fund is not a US-situs asset, even when it holds US shares.

Does Borderfolio apply the marital credit?

No. It applies the small-estate rule and the pro-rated unified credit, using the client's total wealth on file as the worldwide estate. The marital credit and the Canadian side of the estate are left to the client's advisers.