Will our son have to pay tax on his Canadian inheritance? - MoneySense

Paying taxes on an inheritance

Plus: What to know about taxes on U.S. investments in TFSAs


Q: I have a son that is living in the U.S. (for the last 20 years) and married. Would he have to pay taxes in the U.S. when he inherits from his parents? How would the taxes work in this case?


A: Alain, generally speaking no, your son will not have to pay any tax on inherited money or property. That being said there are assets that when inherited in the U.S. are taxable to the beneficiary—such as U.S. retirement accounts and U.S. savings bonds.

If the parent is Canadian and the asset has been taxed on their final Canadian tax return, the beneficiary will inherit the account/asset with a basis equal to the fair market value on the date of death.

Q: I have a question regarding taxes in TFSA investment accounts. Do we have to deal with any tax issues when we purchase U.S. or international ETFs? And if so, what are they?


A: The Tax-Free Savings Account (TFSA) allows eligible Canadians to invest in a variety of investments. The options are only limited by the offerings of the financial institution. This would include U.S. or International ETFs. Earnings from Canadian investments are tax-free to the account holder, however, earnings from foreign investment are subject to foreign withholding tax and are withheld by the financial institution. The 15 per cent withholding tax on U.S. dividends is one example of this.

Cleo Hamel is a senior tax expert with American Expat Tax Services. 

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