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| Path: Main Street : Resources & Library : Research Articles : Feature Article |
Canada/US tax convention revisedJuly 4, 1995; Canadian FundRaiser
A series of technical changes have been made to the Protocol amending the Convention between Canada and the United States with respect to taxes on income and capital. Apparently, however, the US government now intends to revise the agreement further, and ratification may be delayed. For the moment, taxpayers should work with the old rules.
The changes, retroactive with respect to deaths after November 10, 1988, clarify the application of the rules primarily dealing with taxes arising on death. There is a one-year time limit proposed for retroactive applications. There will now be some relief from double taxation resulting from the application of estate taxes imposed by the United States on Canadians who had retired to the USA or Canadian residents who owned property in the USA valued at $60,000 or more.
US federal and state estate tax payable by a Canadian resident may now be deducted from Canadian tax on US source capital gains and US source income arising in the year of death. Canadian federal and provincial income taxes payable on death by US citizens or residents with respect to properties situated outside the US can be credited against the US estate tax attributable to those assets.
Canadians will now receive a credit against US estate tax for up to $600,000 of US-based assets, based on the portion of their world-wide assets that is in US property. One of the implications is that large insurance policies could reduce the value of this credit, unless the beneficiary designation is irrevocable.
As long as the value of a Canadian resident's worldwide gross estate is no more tha $1.2 million, US federal estate taxes will apply only to their American real estate assets. Thus US securities, wherever held, will not be subject to US estate tax.
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