Question

Hi Mr. Hogan

My Mother recently passed away (she lives in the US and I live in Canada) and I’ll be receiving a sizable inheritance some time next year once the estate is fully resolved and wound up. I’m really worried about how much tax I’ll need to pay on the inheritance. Here are more details on the amounts:

• $250,000 in an inherited IRA
• $50,000 in a ROTH IRA
• Almost $2,000,000 in a Fidelity investment account
• Cash proceeds from home (will sell soon)
• Condo in the US that I’m not sure I will be selling. It has long-term tenants in it right now that have been there for a long time.
• Misc household goods

Do you need any more information?

Thanks

XXXXXX

Answer

Hi XXXX

Thanks for the email and I’m very sorry to hear about your Mother. Receiving inheritances from the US can result in some fairly complex tax and financial planning issues so I’ll try to outline some general thoughts below. We should schedule an actual cross-border consultation to discuss these issues in more detail:

• Assuming all the required income tax and estate tax filings are handled on the US side for your mother the assets should transfer up to you in Canada without additional current tax.
• The ROTH and regular IRA can be transferred tax-free and will continue to be deferred from taxation assuming they have properly been transferred to inherited accounts
• You will have to file a ROTH IRA election next year to report the ROTH to Canada and to ensure you can pull money out tax free.
• You’ll also likely need to file a T1142 to report the distribution of the estate assets to you personally in the year.
• You’ll also need to file a form T1135 to report your US assets on your Canadian return.
• The regular investment account can be transferred to you tax free. You’ll need to ensure the original cost basis’s are adjusted to the fair market value at her date of death to ensure you don’t pay additional capital gains when you sell the investments.
• It wasn’t very clear from the email below if you were also a US citizen. We should chat further as this will make a difference in your tax filings. For example, if you own a US rental property and are not currently filing US 1040 returns (and you are not a US citizen or green card holder) you’ll need to start filing 1040NR returns to report the US rental income.
• You’ll also want to talk to an investment advisor that can help transfer assets from the US to Canada. Raymond James in Victoria has licenses in Canada and the US. I can provide a referral if required.

Hope that helps a little. Let’s chat in more detail soon on the above.

Cheers

Phil