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U.S. Estate Tax Repeal


The United States has estate tax - a tax Canadians generally tend to be unfamiliar with. Canada and some provinces had the same thing, but it was completely removed 1981, on the belief that it is an inefficient way to tax.

In Canada, U.S. estate tax primarily affects U.S. citizens residing here and Canadians with U.S. real estate and / or stocks in U.S. companies.

The main bill

On January 10, 2017, Rep. Kristi Noem (R-SD) introduced a bill [HR 631-115] to repeal the estate tax. Interestingly, this bill was co-sponsored by a Democrat.

This bill, a duplicate of one that passed the House in 2015, provides that:

  • The estate tax will not apply with respect to estates of decedents dying after the date of enactment;
  • The generation-skipping transfer tax will not apply with respect to transfers after the date of enactment;
  • The gift tax will be retained, but the top rate will be reduced to 35 per cent, with respect to taxable transfers after $500,000;
  • The anti-estate freezing rules will be retained (they matter for gift tax purposes);
  • The estate tax will continue to be imposed on Qualified Domestic Trusts with respect to a person who died before the date of enactment, but only for a period of ten years from the date of enactment;
  • The “bump” in basis to fair market value on the date of death will be continued, and
  • A transfer in trust will be treated as a gift, unless the trust is treated as wholly owned by the donor or his spouse under the grantor trust rules.

Another bill

On January 11, a separate bill [HR 451-115] was introduced by Robert Latta (R-OH) that is even simpler. It repeals the estate tax without altering any other portion of the Internal Revenue Code. So the gift tax would remain as is. However, there are many references to the estate tax in the gift tax chapter, such as the rate of tax.

Prospects for passage

U.S. Republicans have wanted to repeal their estate tax for the same reason for a long time. Under George W. Bush, they were able to gradually reduce estate tax and finally eliminate it for 2010. Because of Congress’ budgeting rules however, the estate tax returned in 2011. Since that time, Republicans have passed several repeal bills, all of which have been stymied by Congressional Democrats or vetoed by President Obama. With an entirely Republican Congress and a President committed to repeal, it is expected the estate tax will successfully be repealed.

For more information, contact Kevyn Nightingale, CPA, CA, CPA (ILL), TEP at 416.596.1711 or [email protected].