Other Tax Questions
Questions and comments on other topics covered in Fairmark.com, such as UTMA accounts, and any tax questions that don't fit our other categories.
Canadian resident heirs tax obligations on U.S. estate
Posted by: patknight, April 18, 2017 05:13AM
Hi,
Facts: Relative died intestate in California leaving 20 heirs. One heir is a Canadian citizen with a U.S. social security number (as she used to live in the U.S.). The property in the estate is a condo that the estate sold and some bank accounts with cash. The Canadian citizen heir's inheritance will likely be around $50-80K.

Impression: From what I could find, there is no tax on this inheritance for the Canadian heir either in Canada or in the U.S. (although I would like to see some authority or link confirming this more clearly). Also, it appears that unless the Canadian resident fills out an IRS form W-8BEN, the estate must withhold at least 30% of her inheritance.

Question: 1) Is any tax due on the Canadian heir's inheritance and could you provide authority for your answer? 2) Does the Canadian Beneficiary need to complete and submit to the Estate administrator a W-8BEN to avoid withholding? 3) If so, does anyone know the name and specific provision of the US-Canada tax treaty that says no tax is due under the treaty? 4) Does the fact the Canadian heir has a SS# simplify the inheritance process for her in any way? 5) Are there any other steps or forms (IRS or otherwise) the Canadian heir must take/complete?

Thank you!

Re: Canadian resident heirs tax obligations on U.S. estate
Posted by: patknight, April 23, 2017 08:37AM
Not necessary to answer all questions. If you know the answer to any one of them, please feel free to post.

Thank you!

Re: Canadian resident heirs tax obligations on U.S. estate
Posted by: triad, April 23, 2017 06:38PM
The SSN simplifies life for the executor as they do not have to apply for an ITIN for the heir. It does not absolve the executor of any other duties (withholding and filing of a 1040NR for the beneficiary).

It may behoove the executor to set up any and all bank accounts as non interest bearing. If there is a $1 of taxable income, the presence of an NRA heir makes the 1041 mandatory. However, when the estate sells the condo, they have to do a 1041 for that year regardless.

IRS publication 515 covers withholding rules for the executor. The US Canada tax treaty article xxii seems to imply that the maximum tax rate is 15% so the W-8Ben may be able to specify the lower rate.

Given the amounts of money involved, I'd hire an Enrolled Agent familiar with tax treaties.



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