Dying With Assets in Both Countries: The Executor's Sequence Across the Border

When a person dies owning property in both countries, the executor faces two tax systems with different bases (Canada taxes the deceased's gain; the US taxes the estate's value), two sets of filings with different deadlines, two clearance processes before distribution, and a treaty article that coordinates them imperfectly. The order matters: the Canadian final return before the Canadian clearance certificate, the US estate return within nine months, and neither country's assets distributed until both have cleared. An executor who distributes early is personally liable in both.

Key takeaways

• Canada: the final T1 reports a deemed disposition of all capital property at fair market value and the full RRSP or RRIF balance as income, unless rolled to a spouse. Due April 30 of the following year (or six months after death if later). No estate tax; provincial probate fees. A clearance certificate (Form TX19) is required before distribution.
• United States, citizen or resident: Form 706 within nine months if the gross estate exceeds the exemption ($15 million from 2026); estate tax on worldwide assets above it; unlimited marital deduction for a US-citizen spouse; heirs receive stepped-up basis. The final 1040 reports income to the date of death; the estate files Form 1041 thereafter.
• United States, non-resident: Form 706-NA within nine months if US-situs assets exceed $60,000; the treaty prorates the full exemption by the US-situs share of the worldwide estate, which eliminates the tax for most Canadians, but only if the return is filed.
• Treaty credits (Article XXIX B): the US estate tax computation credits Canadian income tax on the deemed disposition of the same assets; Canada allows a credit for US estate tax on US-situs property against Canadian tax on the deemed disposition of that property.
• Executors are personally liable in each country for tax on property distributed before clearance.

A Canadian resident dies with US assets

Canada. The executor files the final T1 with the deemed disposition of every capital asset (including the US assets, in Canadian dollars) and the RRSP or RRIF inclusion. Spousal rollovers defer the tax on assets and registered plans transferred to a surviving spouse. Optional separate returns (rights or things, business income) can reduce the tax. The estate becomes a graduated rate estate for up to 36 months. Provincial probate applies to probated assets; US assets held in a US revocable trust or with a named beneficiary avoid Canadian probate on those assets. The executor applies for a clearance certificate before distributing.

United States. US-situs assets (real estate, tangible property in the US, shares of US corporations, but not US bank deposits or US Treasury bonds) above $60,000 require Form 706-NA within nine months. The treaty's Article XXIX B(8) prorates the full US exemption by the ratio of US-situs assets to the worldwide estate; a $600,000 Florida condo in a $4 million estate gets 15% of $15 million, or $2.25 million, and no US estate tax is due. The return must be filed to claim it. The Canadian income tax on the deemed disposition of the US assets can be credited against any US estate tax on them.

A US citizen dies in Canada

United States. The estate files Form 706 within nine months if the worldwide gross estate exceeds the exemption; the marital deduction is unlimited for a US-citizen spouse and available through a QDOT for a non-citizen spouse. Heirs take stepped-up basis. The executor files the final 1040 and the estate's Form 1041.

Canada. The deceased was a Canadian resident, so the final T1 reports the deemed disposition of worldwide assets and the RRSP inclusion, and Canada taxes the gain. Article XXIX B(6) allows the US estate tax to be reduced by a credit for the Canadian tax on the deemed disposition of the same assets, and Canada allows a credit for US estate tax on US-situs property. The two taxes are on different bases, and the credit rarely eliminates the overlap for estates with large unrealized gains and values near the exemption.

A US resident dies with Canadian assets

United States. Form 706 on the worldwide estate, including the Canadian assets at USD value.

Canada. The deceased was a non-resident, so the deemed disposition applies only to taxable Canadian property (Canadian real estate, resource property, certain private company shares) on a final T1; a Canadian RRSP or RRIF is included in full as income on the final return. Section 116 clearance applies when the estate or heirs sell Canadian real estate. Canadian probate applies to Canadian assets.

The executor's sequence

1. Identify the deceased's residency at death in each country's terms, and the situs of every asset.
2. File the Canadian final T1 (and optional returns) and pay the tax; apply for the clearance certificate.
3. File Form 706 or 706-NA within nine months (or extend); claim the treaty proration or credits; pay any US tax.
4. Obtain US estate closing (the IRS issues a closing letter or account transcript) and the Canadian clearance certificate.
5. Distribute. A US-person heir of a Canadian estate files Form 3520 for inheritances above $100,000; a Canadian heir of an IRA or 401(k) faces US withholding on distributions.

Worked example

A Toronto widower dies owning a $1.4 million Toronto home, a $700,000 portfolio with $300,000 of unrealized gain, a $500,000 RRIF, and a $500,000 Naples condo, leaving everything to two children, one in Toronto and one in Miami.

• Canada. Final T1: home sheltered by the principal residence exemption; portfolio gain $300,000, $150,000 taxable; RRIF $500,000 included; tax roughly $330,000. Ontario probate about $46,000. Clearance certificate before distribution.
• US. US-situs assets $500,000 of a $3.1 million estate: 16% of $15 million is $2.4 million of exemption; no US estate tax. Form 706-NA filed within nine months to claim it.
• Miami child. Form 3520 for the inheritance above $100,000; US basis in the condo and portfolio share at date-of-death value.
• Toronto child. No Canadian tax on receipt; cost base at date-of-death value.

Official sources

"Capital property (such as real estate, investments, or personal belongings) owned by the person who died is considered to be disposed of by that person immediately before their death at fair market value." — Canada Revenue Agency, Taxable capital gains on property, investments, and belongings, https://www.canada.ca/en/revenue-agency/services/tax/individuals/life-events/doing-taxes-someone-died/prepare-returns/report-income/capital-gains.html

"Having a clearance certificate confirms that an estate of a person who died, trust, or corporation has paid all amounts of income tax and GST/HST, interest, and penalties it owed at the time the certificate was issued." — Canada Revenue Agency, Get a clearance certificate, https://www.canada.ca/en/revenue-agency/services/tax/individuals/life-events/doing-taxes-someone-died/clearance-certificate.html

"The Estate Tax is a tax on your right to transfer property at your death." — Internal Revenue Service, Estate Tax, https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax

"An executor for a nonresident, not a citizen of the U.S. must file an estate tax return, Form 706-NA, United States Estate (and Generation-Skipping) Tax Return, Estate of a nonresident not a citizen of the United States, if the fair market value at death of the decedent's U.S.-situated assets exceeds $60,000." — Internal Revenue Service, Estate tax for nonresidents not citizens of the United States, https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax-for-nonresidents-not-citizens-of-the-united-states

Practitioner note

Cross-border estates go wrong in the sequence: the executor distributes the Canadian assets after the Canadian clearance and forgets the US return, or files the US return late and loses the treaty proration, or distributes to a US heir who never files the Form 3520. We give the executor one timeline with both countries on it, and we do not release the file until both have cleared.

See also: Planning a move? Start with the Canada-to-US tax checklist and browse every corridor by city, province, and state.

Next step

Fairlight prepares the Canadian final return and clearance certificate, the Form 706 or 706-NA with the treaty proration and credits, and the heirs' reporting on both sides. See cross-border pricing or book a call.