Canada and the U.S. – Two Countries, One Border, Divergent Rules on Wealth Transfers
Volume 9 No 1 / Read Article
Canadians and Americans share many things in common. Common language, one border, a love for teams in the National Hockey League, a slew of dual citizen individuals in Canada and Canadian residents in the U.S., and a common history up to the time of the American Revolution. But many differences exist, nonetheless. To illustrate, when wealth is transferred, the U.S. imposes gift and estate taxes based on value. Canada imposes capital gains tax. The U.S. imposes income taxes on global income based on citizenship as well as residence. Canada imposes income tax on global income based only on residence. Canada imposes departure taxes when any resident leaves the country to establish a residence elsewhere. The U.S. imposes departure tax only when citizenship is renounced, or when a long-term green card holder relinquishes his or her green card. These differences trigger several tax traps, many of which can be avoided by unique provisions in the Canada-U.S. Income Tax Treaty. But the treaty is not perfect. In his article, Andreas Apostolides explains the taxation rules for wealth transfers in both countries, the applicable provisions in the income tax treaty designed to be helpful, and most importantly, a solution that is followed by many Canadian tax advisers when the treaty fails to provide a solution for disparities in adjusted cost basis for certain assets received as a gift or a bequest. See more →