Inheritance from - answered by


David,
 
My old friend, xxxxxxx (you may have met him once or twice), passed away in November.  Apparently, I'll be receiving some money from his estate, maybe around $50,000 .  The lawyer suggested I discuss this with you as inheritance tax is different in Canada and the US.  He thought that if I left the money in Canada for a year, I could bring it to the US afterward without paying the taxes.  I still have a Canadian Bank Account so transferring the money from the estate to my Canadian account would not be a problem.
 
Could you please let me know the ins and outs of this.
 
Thanks,
 

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david ingram replies:

Congratulations. 

As a rule, there is no inheritance tax in Canada.  If the lawyer or trustee or executor or administrator of the estate sends you a cheque (check)  for $50,000, it should be tax paid money and yours to spend, waste or use as a down payment on a house or to pay down the mortgage on a house you already have. 

If it is under $200,000, there is no paperwork for you in the US as well.  If it was over $200,000, 'you' would have to fill out form 3520.

If the money sent to you does contain a little interest earned on it while the executor was dealing with the estate., the executor should withhold 10% Canadian tax on interest and  or 15% Canadian tax on dividends and or 25% tax on net rents and send you a form NR-4  with this information on it. 

When the time comes, interest and or dividends will be reported on schedule B and rents will be reported on schedule E of your US return. Any tax deducted will be claimed back on schedule 1116 of your US return.

For the US, you also have to report the estate on US form 3520 if the amount you inherit exceeds $100,000 US.  see the rules for this form at  http://www.irs.gov/pub/irs-pdf/i3520.pdf

see the reference for this in paragraph 4a  about 4 inches down on the left of the first page at  http://www.irs.gov/pub/irs-pdf/i3520.pdf.

Good luck and best wishes.

david

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This is not intended to be definitive but in general I am quoting $900 to $3,000 for a dual country tax return.

$900 would be one T4 slip one W2 slip one or two interest slips and you lived in one country only (but were filing both countries) - no self employment or rentals or capital gains - you did not move into or out of the country in this year.
 
$1,200 would be the same with one rental
 
$1,300 would be the same with one business no rental
 
$1,300 would be the minimum with a move in or out of the country. These are complicated because of the back and forth foreign tax credits. - The IRS says a foreign tax credit takes 1 hour and 53 minutes.
 
$1,600 would be the minimum with a rental or two in the country you do not live in or a rental and a business and foreign tax credits  no move in or out

$1,700 would be for two people with income from two countries

$3,000 would be all of the above and you moved in and out of the country.
 
This is just a guideline for US / Canadian returns
 
We will still prepare Canadian only (lives in Canada, no US connection period) with two or three slips and no capital gains, etc. for $200.00 up. However, if you have a stack of 1099, or T3 or T4A or T5 or K1 reporting forms, expect to pay an average of $10.00 each with up to $50.00 for a K1 or T5013 or T5008 or T101 --- Income trusts with amounts in box 42 are an even larger problem and will be more expensive. - i.e. 20 information slips will be at least $350.00
 
With a Rental for $400, two or three rentals for $550 to $700 (i.e. $150 per rental) First year Rental - plus $250.
 
A Business for $400 - Rental and business likely $550 to $700
 
And an American only (lives in the US with no Canadian income or filing period) with about the same things in the same range with a little bit more if there is a state return.
 
Moving in or out of the country or part year earnings in the US will ALWAYS be $900 and up.
 
TDF 90-22.1 forms are $50 for the first and $25.00 each after that when part of a tax return.
 
8891 forms are generally $50.00 to $100.00 each.
 
18 RRSPs would be $900.00 - (maybe amalgamate a couple)
 
Capital gains *sales)  are likely $50.00 for the first and $20.00 each after that.

Catch - up returns for the US where we use the Canadian return as a guide for seven years at a time will be from $150 to $600.00 per year depending upon numbers of bank accounts, RRSP's, existence of rental houses, self employment, etc. Note that these returns tend to be informational rather than taxable.  In fact, if there are children involved, we usually get refunds of $1,000 per child per year for 3 years.  We have done several catch-ups where the client has received as much as $6,000 back for an $1,800 bill and one recently with 6 children is resulting in over $12,000 refund. 

Email and Faxed information is convenient for the sender but very time consuming and hard to keep track of when they come in multiple files.  As of May 1, 2008, we will charge or be charging a surcharge for information that comes in more than two files.  It can take us a valuable hour or more  to try and put together the file when someone sends 10 emails or 15 attachments, etc. We had one return with over 50 faxes and emails for instance. 

This is a guideline not etched in stone.  If you do your own TDF-90 forms, it is to your advantage. However, if we put them in the first year, the computer carries them forward beautifully.
 





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