Saw the film "Death and Taxes" directed by @Justin_Schein tonight in Toronto. Highly recommended! Shows how taxation weaves its way into families, culture and (as @CharlesAdamsSoc would say) civilization.https://t.co/MhOM9EN9T4

— John Richardson – Counsellor for US persons abroad (@ExpatriationLaw) November 20, 2025

Taxation is destiny

The great tax historian Charles Adams – in his book “Good And Evil” – explained that the rise and fall of civilizations can be understood through the lens of tax policy. On November 26, 2025, the UK Government will deliver, what is anticipated to be, one of the most consequential budgets in the country’s history. This U.K. budget is anticipated to include a Canada style “Departure Tax“.

On November 19, 2025 I attended a “U of T” screening of “Death and Taxes“. “Death and Taxes” is a film about how U.S. tax policy (in this case the U.S. Estate Tax) impacted a person, his family, his life and his country. I highly, highly recommend the film.

Make no mistake: “Taxation Is Destiny!”

Whatever the truth may be (if there is such a thing), Canadians are perceived to be much more highly taxed than similarly situated Americans. Both Canada and the United States have tax systems where the circumstance of death triggers special taxation. Interestingly the U.S. tax is described as an “Estate Tax”. Canada claims to be a country with no “Estate Tax”. Yet, the circumstance of death in Canada, is a taxable event of great significance to the vast majority (if not all) of Canadian residents. Notably, the circumstance of death is a taxable event to only a small percentage of Americans. If an American is below a specific asset threshold, he is NOT subject to the U.S. “Estate Tax”. A higher percentage of Canadians pay taxes that are triggered by their death than the percentage of Americans who pay tax triggered by their death.

Whether justified or not, taxation includes the forced transfer of wealth from the individual to the government. Therefore, it is reasonable to infer that:

In Canada (the country with no “Estate Tax”) death (in most circumstances) is a wealth confiscator through taxation!

In the United States (the country with the “Estate Tax”) death (in most circumstances) is not a wealth confiscator through taxation. In addition, because of the “stepped up basis rule” (which allows assets to be transferred tax free at death), death is actually an overall wealth enhancer! The growth in the value of assets (from aquisition to death) escapes taxation entirely.

Taxes triggered by death in Canada – One layer of taxation

In Canada the fact of death triggers a pretend sale of all of your property and a distribution of tax deferred accounts (RRSP, etc.). The deemed distribution often triggers significant capital gains. Yes, it is possible to pass the assets on to a spouse to defer taxation until the spouse dies. Significantly, the deemed disposition on death ensures that assets are subject to tax on death and cannot be passed to the next generation without taxation. Clearly Canada has significant taxes triggered by the circumstance of death. It’s just that Canada doesn’t call it an “Estate Tax” (even though it is a tax on the decedent’s estate).

Taxes triggered by death in the United States – Two layers of rules

First layer – the rule of non-taxation: In the United States the fact of death does NOT trigger a deemed sale of property and/or a deemed distribution of IRAs (the U.S. equivalent of the RRSP). (Interestingly the Biden “Green Book” has suggested that death should trigger taxation.) Under the current U.S. rules, assets can be bequeathed on death to a beneficiary tax free. In addition, the beneficiary inherits the asset at the “Fair Market Value” of the asset at the time of death.

Second layer – the rule of possible taxation: Upon death, the estate of the American MAY be subject to an “Estate Tax”. Effective January 1, 2026, the estate will be subject to the Estate Tax if it has assets in excess of 15 million dollars. It is widely recognized that the U.S. Estate tax does not impact many people. Significantly (separately from the U.S. “Estate Tax“, some U.S. states have either estate taxes or inheritance taxes.)

Q. Are you better off dying in Canada or the United States?

A. It depends

Taxation on death is far more likely to trigger taxes in Canada (the country without an Estate Tax) than in the United States (the country with the Estate Tax). Consider the following simple example:

Let’s compare the situation of an American living in Detroit, Michigan and a Canadian living in Windsor, Ontario. Each of them bought vacant land in 1990. Each of the American and the Canadian bought vacant land located in Detroit, Michigan. Each paid $100,000 USD in 1990. In 2025 they each died. The value of each of their vacant lots was $500,000 USD. Each person wished to leave their respective vacant lots to their children.

How it would work in Canada: The Canadian’s executors would file a tax return with the Canada Revenue Agency reporting a capital gain of $400,000 USD of which $200,000 would be subject to taxation. This means that the gain from $100,000 to $500,000 is taxed in Canada. When/if the children receive the property their cost basis (for future capital gains purposes) would be $500,000.

How it would work in the United States: The American’s executors (if the net worth was below the “Estate Tax” threshold) would simply transfer the property to the children. The children would assume a cost basis of $500,000 USD. Notice that the gain from $100,000 to $500,000 completely escapes U.S. taxation. Clearly few Americans pay any tax on death and almost all Canadians pay a tax on death. When/if the children (in either country) receive the property, their cost basis (for future capital gains purposes) is $500,000.

What about the U.S. Estate Tax? If the American had a net worth of 15 million U.S. dollars or more then the Estate Tax rules wold be triggered. But, assuming the American is below the 15 million dollar threshold, there would be no U.S. taxes triggered by the circumstance of death.

What about U.S. Citizens living in Canada? How do they navigate the rules of each of Canada and the USA?

Naturally, U.S. citizenship taxation means U.S. citizens living in Canada must navigate the rules in both Canada and the United States.

The Canada/U.S. tax treaty contains provisions that make life much easier for U.S. citizens dying (and sometimes living) in Canada. Because Canada doesn’t have an “Estate Tax” (wink wink) the relevant provisions are found in Article XXIX B of the Canada/US income tax treaty. (I have reproduced this section of the treaty in the Appendix* to this post.)

What about “Pure Canadians” (those without U.S. citizenship)? How do the U.S. “Estate Tax” rules impact them?

The general principle is that non-U.S. citizens who own certain kinds of U.S. property may be subject to U.S. Estate taxes. In the example of the purchase of the vacant lots, the Canadian “may” be subject to a U.S. estate tax because the lot is located in the United States. The morbid details are discussed here. Canadians will find the Canada/U.S. tax treaty may provide relief. Pure Canadians (and other non-U.S. citizens) should be VERY CAREFUL about buying U.S. real estate or other U.S. situs (includes shares of U.S. companies) assets! But, I digress …

While watching the film, I asked myself the questions:

Why is there so little objection to the “taxes triggered on death” in Canada? All Canadians are subject to Canada’s taxes triggered by death. Why is there is such great objection to the “Estate Tax” in the United States? The U.S. Estate Tax impacts such a small percentage of Americans. Both the Canadian and U.S. taxes are triggered by the circumstance of death.

My theory is …

When ALL people are subject to a tax there is less perception of the unfairness of the tax. People may hate a tax. They may believe it is an unjustifiable tax. But, if EVERYBODY is subject to the tax it’s harder to argue that a tax is unfair. After all: We are ALL in this together!

If my theory is correct:

The fact that so few people are actually subject to the U.S. Estate tax feeds the perception of unfairness. Why should the vast majority be excluded? Why should there be “carve outs” from a tax? Either a tax makes sense or it doesn’t. But, to apply a tax to ONLY one specific group of people nurtures arguments questioning fairness. Why should there be a threshold at all? If there is to be a threshold what should the threshold be? The inclusion of only some people in a tax really means a “carve out” for others. Either a tax makes moral, economic, social and administrative sense or it doesn’t.

Countries would be much better off developing sound tax policy, rather than thinking about who should and who should not be subjected to a tax of dubious justification.

In closing, whether you are interested in tax policy or not:

“Death And Taxes” is a great film!

John Richardson

*Appendix – Article Article XXIX B of the Canada/U.S. Tax treaty (Good luck reading and understanding!)

Taxes Imposed by Reason of Death

1. Where the property of an individual who is a resident of a Contracting State passes by reason of the individual’s death to an organization that is referred to in paragraph 1 of Article XXI (Exempt Organizations) and that is a resident of the other Contracting State,

• (a) if the individual is a resident of the United States and the organization is a resident of Canada, the tax consequences in the United States arising out of the passing of the property shall apply as if the organization were a resident of the United States; and
• (b) if the individual is a resident of Canada and the organization is a resident of the United States, the tax consequences in Canada arising out of the passing of the property shall apply as if the individual had disposed of the property for proceeds equal to an amount elected on behalf of the individual for this purpose (in a manner specified by the competent authority of Canada), which amount shall be no less than the individual’s cost of the property as determined for purposes of Canadian tax and no greater than the fair market value of the property.

2. In determining the estate tax imposed by the United States, the estate of an individual (other than a citizen of the United States) who was a resident of Canada at the time of the individual’s death shall be allowed a unified credit equal to the greater of

• (a) the amount that bears the same ratio to the credit allowed under the law of the United States to the estate of a citizen of the United States as the value of the part of the individual’s gross estate that at the time of the individual’s death is situated in the United States bears to the value of the individual’s entire gross estate wherever situated; and
• (b) the unified credit allowed to the estate of a nonresident not a citizen of the United States under the law of the United States.

The amount of any unified credit otherwise allowable under this paragraph shall be reduced by the amount of any credit previously allowed with respect to any gift made by the individual. A credit otherwise allowable under subparagraph (a) shall be allowed only if all information necessary for the verification and computation of the credit is provided.

3. In determining the estate tax imposed by the United States on an individual’s estate with respect to property that passes to the surviving spouse of the individual (within the meaning of the law of the United States) and that would qualify for the estate tax marital deduction under the law of the United States if the surviving spouse were a citizen of the United States and all applicable elections were properly made (in this paragraph and paragraph 4 referred to as “qualifying property”), a non-refundable credit computed in accordance with the provisions of paragraph 4 shall be allowed in addition to the unified credit allowed to the estate under paragraph 2 or under the law of the United States, provided that

• (a) the individual was at the time of death a citizen of the United States or a resident of either Contracting State;
• (b) the surviving spouse was at the time of the individual’s death a resident of either Contracting State;
• (c) if both the individual and the surviving spouse were residents of the United States at the time of the individual’s death, one or both was a citizen of Canada; and
• (d) the executor of the decedent’s estate elects the benefits of this paragraph and waives irrevocably the benefits of any estate tax marital deduction that would be allowed under the law of the United States on a United States Federal estate tax return filed for the individual’s estate by the date on which a qualified domestic trust election could be made under the law of the United States.

4. The amount of the credit allowed under paragraph 3 shall equal the lesser of

• (a) the unified credit allowed under paragraph 2 or under the law of the United States (determined without regard to any credit allowed previously with respect to any gift made by the individual), and
• (b) the amount of estate tax that would otherwise be imposed by the United States on the transfer of qualifying property.

The amount of estate tax that would otherwise be imposed by the United States on the transfer of qualifying property shall equal the amount by which the estate tax (before allowable credits) that would be imposed by the United States if the qualifying property were included in computing the taxable estate exceeds the estate tax (before allowable credits) that would be so imposed if the qualifying property were not so included. Solely for purposes of determining other credits allowed under the law of the United States, the credit provided under paragraph 3 shall be allowed after such other credits.

5. Where an individual was a resident of the United States immediately before the individual’s death, for the purposes of subsections 70(5.2) and (6) of the Income Tax Act, both the individual and the individual’s spouse shall be deemed to have been resident in Canada immediately before the individual’s death. Where a trust that would be a trust described in subsection 70(6) of that Act, if its trustees that were residents or citizens of the United States or domestic corporations under the law of the United States were residents of Canada, requests the competent authority of Canada to do so, the competent authority may agree, subject to terms and conditions satisfactory to such competent authority, to treat the trust for the purposes of that Act as being resident in Canada for such time and with respect to such property as may be stipulated in the agreement.

6. In determining the amount of Canadian tax payable by an individual who immediately before death was a resident of Canada, or by a trust described in subsection 70(6) of the Income Tax Act (or a trust which is treated as being resident in Canada under the provisions of paragraph 5), the amount of any Federal or state estate or inheritance taxes payable in the United States (not exceeding, where the individual was a citizen of the United States or a former citizen referred to in paragraph 2 of Article XXIX (Miscellaneous Rules), the amount of estate and inheritance taxes that would have been payable if the individual were not a citizen or former citizen of the United States) in respect of property situated within the United States shall,

• (a) to the extent that such estate or inheritance taxes are imposed upon the individual’s death, be allowed as a deduction from the amount of any Canadian tax otherwise payable by the individual for the taxation year in which the individual died on the total of
  • (i) any income, profits or gains of the individual arising (within the meaning of paragraph 3 of Article XXIV (Elimination of Double Taxation)) in the United States in that year, and
  • (ii) where the value at the time of the individual’s death of the individual’s entire gross estate wherever situated (determined under the law of the United States) exceeded 1.2 million U.S. dollars or its equivalent in Canadian dollars, any income, profits or gains of the individual for that year from property situated in the United States at that time, and
• (b) to the extent that such estate or inheritance taxes are imposed upon the death of the individual’s surviving spouse, be allowed as a deduction from the amount of any Canadian tax otherwise payable by the trust for its taxation year in which that spouse dies on any income, profits or gains of the trust for that year arising (within the meaning of paragraph 3 of Article XXIV (Elimination of Double Taxation)) in the United States or from property situated in the United States at the time of death of the spouse.

For purposes of this paragraph, property shall be treated as situated within the United States if it is so treated for estate tax purposes under the law of the United States as in effect on March 17, 1995, subject to any subsequent changes thereof that the competent authorities of the Contracting States have agreed to apply for the purposes of this paragraph. The deduction allowed under this paragraph shall take into account the deduction for any income tax paid or accrued to the United States that is provided under paragraph 2(a), 4(a) or 5(b) of Article XXIV (Elimination of Double Taxation).

7. In determining the amount of estate tax imposed by the United States on the estate of an individual who was a resident or citizen of the United States at the time of death, or upon the death of a surviving spouse with respect to a qualified domestic trust created by such an individual or the individual’s executor or surviving spouse, a credit shall be allowed against such tax imposed in respect of property situated outside the United States, for the federal and provincial income taxes payable in Canada in respect of such property by reason of the death of the individual or, in the case of a qualified domestic trust, the individual’s surviving spouse. Such credit shall be computed in accordance with the following rules:

• (a) a credit otherwise allowable under this paragraph shall be allowed regardless of whether the identity of the taxpayer under the law of Canada corresponds to that under the law of the United States;
• (b) the amount of a credit allowed under this paragraph shall be computed in accordance with the provisions and subject to the limitations of the law of the United States regarding credit for foreign death taxes (as it may be amended from time to time without changing the general principle hereof), as though the income tax imposed by Canada were a creditable tax under that law;
• (c) a credit may be claimed under this paragraph for an amount of federal or provincial income tax payable in Canada only to the extent that no credit or deduction is claimed for such amount in determining any other tax imposed by the United States, other than the estate tax imposed on property in a qualified domestic trust upon the death of the surviving spouse.

8. Provided that the value, at the time of death, of the entire gross estate wherever situated of an individual who was a resident of Canada (other than a citizen of the United states) at the time of death does not exceed 1.2 million U.S. dollars or its equivalent in Canadian dollars, the United States may impose its estate tax upon property forming part of the estate of the individual only if any gain derived by the individual from the alienation of such property would have been subject to income taxation by the United States in accordance with Article XIII (Gains).