This guide is general information for educational purposes only. It is not legal, tax or financial advice. Speak with a qualified lawyer, accountant or tax professional about your situation.
How Canadian and US owners are taxed across the border: 15% FIRPTA withholding, non-resident rent rules, section 116 and US estate tax above US$60,000.
This is for Canadian residents who own or sell US property, and for Americans and other non-residents who own in Toronto. Short answer: the property’s country can tax its rent and sale gains. Your country of residence may tax them too, with treaty relief and foreign tax credits subject to limits.
The friction is in the details: how title is held, how many days you spend south of the border, and what happens at death. Below is how I think through each piece, with links to the official rules. Your accountant and lawyer should confirm the numbers on your own file.
Should a Canadian own US property personally, in an LLC, a corporation or a trust?
I start with personal ownership (or joint ownership with a spouse), and assess the tax treatment in each country. The choice gets complicated the moment an entity is added, because Canada and the US do not always classify the same entity the same way.
The clearest example is the US limited liability company (LLC), a business structure allowed under state law. For federal income tax, the IRS treats a single-member LLC as part of its owner's return (a "disregarded entity") and a multi-member LLC as a partnership, unless it elects otherwise.
The CRA states plainly that an LLC "is treated as a taxable corporation for Canadian tax purposes."
That mismatch is the risk. The US may tax you personally while Canada sees income earned by a foreign corporation, so tax paid in one country may not line up with tax owed in the other. I would have cross-border counsel assess that mismatch before using an LLC.
Corporations and trusts can have a place, usually for estate planning or liability reasons, and I review filing costs and drafting implications in both countries. I treat them as a conversation for cross-border counsel, not a default.
How is a Canadian taxed on US rental income and on a sale?
Renting the property
US rent paid to a nonresident alien is generally taxed at 30% of the gross amount if it is not effectively connected with a US trade or business. Section 871(d) allows an election to tax qualifying real-property income on a net basis, requiring Form 1040-NR annually while the election remains in effect.
Timing matters. The IRS warns that a nonresident who files more than 16 months after the original due date generally loses the right to claim deductions.
If you remain a Canadian resident, Canada also taxes your worldwide income, so the rent goes on your Canadian return too, with a foreign tax credit for eligible US tax paid, subject to limits.
Selling the property: FIRPTA
FIRPTA (the Foreign Investment in Real Property Tax Act) generally requires the buyer to withhold 15% of the amount realized (essentially the gross sale price) when the seller is a foreign person. On a hypothetical US$2,000,000 Florida condo, that is US$300,000 held back at closing, regardless of your actual gain.
For qualifying purchases by an individual for residential use, withholding is zero up to US$300,000 and 10% above US$300,000 through US$1 million. The buyer or family must plan to occupy the home for at least 50% of its occupied days in each of the first two 12-month periods; vacant days do not count. IRS residence conditions apply.
Sellers can apply on Form 8288-B for a certificate reducing or eliminating withholding. The IRS generally acts within 90 days of a complete application, including all parties’ taxpayer identification numbers, so I build that into the timeline.
Withholding is a prepayment, not the final tax. You file a US return to report the gain and recover any excess.
Under Article XIII of the Canada-US tax treaty, gains on real property "may be taxed" where the property sits. Canadian residents also calculate and report the gain under Canadian rules and may claim a foreign tax credit, subject to limits.
Does US estate tax apply to Canadians who own US property?
Yes, potentially. For a Canadian resident who is neither a US citizen nor US-domiciled, US-situated assets above US$60,000 trigger Form 706-NA. Adjusted taxable gifts can also affect filing. Estate-tax residence depends on domicile. The marginal estate-tax rate reaches 40% on taxable amounts above US$1,000,000.
The treaty softens this. A Canadian resident's estate can claim a pro rata unified credit: the credit available to a US citizen, multiplied by US assets divided by worldwide assets. For 2026, the US basic exclusion amount is US$15,000,000 per person (not per couple), which corresponds to a credit of US$5,945,800.
The practical result is that your worldwide gross estate helps determine the outcome. Here is a simplified example for a hypothetical US$3,000,000 Florida home, assuming a Canadian treaty resident who is neither a US citizen nor US-domiciled, death in 2026, no other US assets, no prior taxable gifts, no deductions and no marital credit.
| Worldwide gross estate | US share | Treaty credit | Est. US estate tax |
|---|---|---|---|
| US$10,000,000 | 30% | US$1,783,740 | US$0 |
| US$15,000,000 | 20% | US$1,189,160 | US$0 |
| US$30,000,000 | 10% | US$594,580 | US$551,220 |
Tax before credits on a US$3,000,000 taxable estate is US$1,145,800 under the IRS rate table. Under these assumptions, the prorated credit eliminates it until the worldwide gross estate passes roughly US$15.6 million.
The treaty also offers a marital credit for qualifying property passing to a spouse. Article XXIX B, paragraph 6 allows qualifying US death taxes to reduce Canadian tax on specified income and gains, subject to limits; this is relief against tax, not a deduction from income.
Canada adds its own layer: a Canadian resident’s capital property is generally deemed sold at fair market value just before death. A qualifying spousal rollover or exemption may change the result. Otherwise, the US home’s gain may appear on the final Canadian return. Coordinating the two is the main job of your estate planner.
Adding a child to title
Transferring a beneficial share of a US home to an adult child without payment can be a gift. The IRS confirms that nonresident non-citizens are subject to US gift tax on US real property.
For gifts of present interests, the annual exclusion is US$19,000 per recipient for 2026, so a share of a seven-figure property can easily require a Form 709-NA filing and tax.
How many days can a Canadian snowbird spend in the US?
The IRS substantial presence test makes you a US tax resident if you are present at least 31 days this year and at least 183 weighted days over three years, counting all of this year's days, one-third of last year's and one-sixth of the year before. Generally, any part of a day counts, but the IRS lists exceptions.
Spending 120 counted days each year totals 180 (120 + 40 + 20), which does not meet the test. At 122 days a year the total reaches 183 and you meet the test. I track counted days rather than rely on a four-month rule of thumb.
If you meet the test, the closer connection exception may apply: fewer than 183 days in the US that year, a Canadian tax home throughout the year, a closer connection to Canada and no disqualifying US permanent-residence steps. Form 8840 must generally be filed on time.
At 183 counted days or more in the current year, that exception is unavailable. Dual residents may instead qualify under the treaty tie-breaker, which looks first at where you have a permanent home. I would not plan around that if it can be avoided.
How are Americans and other non-residents taxed on Toronto property?
Renting out a Toronto home
Non-resident Canadian rental income generally attracts 25% withholding on gross rent under Part XIII of the Income Tax Act. On a hypothetical C$10,000 monthly lease, that is C$2,500. Arrange collection with a Canadian agent; CRA says residential tenants are not expected to determine their landlord’s residency or withhold their rent.
Form NR6 can reduce monthly withholding. The owner and Canadian agent should send it to CRA by January 1 each year or before the first rent payment is due. Gross withholding continues until written CRA approval; the agent can then withhold 25% of net rent.
With NR6 approval, the owner must generally file a section 216 return by June 30 of the following year: June 30, 2026 for 2025 rent. This deadline has passed. Any withholding above the assessed tax is refunded.
Selling a Toronto home: section 116
A non-resident seller must notify the CRA before the sale or within 10 days afterward and seek a certificate of compliance (a clearance confirming tax has been paid or secured). Without it, section 116 makes the buyer liable for 25% of the price, or 50% for certain property such as depreciable property. I plan for a closing holdback.
| Hypothetical sale (Canadian dollars) | Amount | Basis |
|---|---|---|
| Sale price | $3,500,000 | Illustrative |
| Adjusted cost base | $2,000,000 | Illustrative |
| Buyer's exposure, no certificate | $875,000 | 25% of price |
| Payment or acceptable security for certificate | $375,000 | 25% of $1,500,000 gain |
This example assumes non-depreciable capital property, with no exemption. The certificate payment is a prepayment, not final tax. The gap between those two numbers is why I ask non-resident sellers to start the certificate early.
For the purchase side, including the Non-Resident Speculation Tax, see my NRST and foreign buyer ban explainer, and for how the gain itself is taxed, my capital gains guide.
US citizens who live in Toronto
US citizens are taxed by the US on worldwide income wherever they live. When they sell a Toronto home, Canada's principal residence exemption can shelter the whole gain, but the US exclusion is capped at US$250,000, or US$500,000 on a qualifying joint return, subject to ownership, use and other eligibility tests.
On a luxury home, the gain above that cap can be taxable in the US with no Canadian tax to credit against it. I would model that exposure before listing.
US citizens generally file an FBAR if foreign financial accounts in which they have a financial interest or signature authority exceed US$10,000 in aggregate at any time during the calendar year. Form 3520 reports gifts or bequests exceeding US$100,000 in a tax year from a nonresident alien or foreign estate, aggregating related donors.
What this means for you
- Luxury buyer with a US second home: keep title simple unless your advisers can show why an entity helps. Run the estate table above with your worldwide gross estate, and revisit it as that number grows.
- Investor selling US property: budget for 15% FIRPTA withholding at closing and decide early whether a withholding certificate is worth the wait.
- Rental owner abroad with a Toronto unit: submit NR6 before the first rent payment is due and obtain written approval before reducing withholding and diarize the section 216 return. If the unit sits empty, check my Toronto vacant home tax notes.
- US citizen in Toronto: model the US tax on a sale before you list, not after.
Frequently asked questions
Do I pay tax in both countries when I sell a US property?
You report the sale in both countries, but a Canadian resident may claim a foreign tax credit for eligible US tax paid on the gain, subject to limits. Currency conversion and different tax rules can affect the result.
Is US estate tax based on my US property alone?
For someone neither US-citizen nor US-domiciled, US-situated assets above US$60,000 trigger filing; adjusted taxable gifts can also matter. Whether tax is actually owed depends heavily on your worldwide estate, because the treaty credit is prorated.
Does Canadian departure tax apply to my Toronto home if I move to the US?
No. The CRA's deemed disposition rules on emigration exclude Canadian real property, though a later sale remains within Canada’s taxing jurisdiction, subject to any available exemption.
How long does a section 116 certificate take?
I start the application early and plan for a closing holdback if the certificate has not arrived. I would not promise a processing date.
Sources
- Internal Revenue Code, section 1445, Cornell Legal Information Institute
- Instructions for Form 706-NA, Internal Revenue Service
- Exceptions from FIRPTA Withholding, Internal Revenue Service
- FIRPTA Withholding, Internal Revenue Service
- Withholding Certificates, Internal Revenue Service
- About Form 8288-B, Internal Revenue Service
- Nonresident Aliens: Real Property Located in the U.S., Internal Revenue Service
- Some Nonresidents with U.S. Assets Must File Estate Tax Returns, Internal Revenue Service
- What's New: Estate and Gift Tax, Internal Revenue Service
- Instructions for Form 706, Internal Revenue Service
- IRM 4.25.4, International Estate and Gift Tax Examinations, Internal Revenue Service
- Gift Taxes for Nonresidents Not Citizens of the U.S., Internal Revenue Service
- Substantial Presence Test, Internal Revenue Service
- Closer Connection Exception, Internal Revenue Service
- Limited Liability Company (LLC), Internal Revenue Service
- U.S. Citizens and Resident Aliens Abroad, Internal Revenue Service
- Topic 701, Sale of Your Home, Internal Revenue Service
- Report of Foreign Bank and Financial Accounts (FBAR), Internal Revenue Service
- Gifts from Foreign Person, Internal Revenue Service
- Canada-United States Tax Convention (consolidated), Department of Finance Canada
- IC71-17, Competent Authority Assistance, Canada Revenue Agency
- Income Tax Folio S5-F2-C1, Foreign Tax Credit, Canada Revenue Agency
- Rental income: filing and reporting requirements, Canada Revenue Agency
- Disposing of or acquiring certain Canadian property, Canada Revenue Agency
- Principal residence, Canada Revenue Agency
- Capital gains for someone who died, Canada Revenue Agency
- Dispositions of property on emigration, Canada Revenue Agency
- Income Tax Act, section 116, Justice Laws Website
- Income Tax Act, section 216, Justice Laws Website