US Beneficiary Tax Traps: CFC, PFIC & ACB Step-Up
A US beneficiary in a Canadian estate plan can trigger CFC, PFIC, and ACB step-up mismatches most CPAs miss. Learn what to flag and how to fix it.
When a US Beneficiary Sends Your Canadian Plan Back to the Drawing Board
You build the estate freeze, draft the will, structure the income-splitting trust, or finalize the post-mortem plan, every angle covered from a Canadian perspective. Then you discover that one of the beneficiaries is a US person, and the whole plan needs a second look. It happens more often than most CPAs expect: a child born in the US is a citizen from birth, another moves south and becomes a US resident, and over time picks up a green card or citizenship. Once a green card has been held for eight years, giving it up is just as difficult as giving up citizenship, and most people who've built a life in the US have little appetite for either. In practice, the US beneficiary is usually here to stay, and the plan has to be built around that fact.
- check_circle Know exactly when US rules take over. A child born in the US is a citizen from birth. A green card held eight years is as hard to give up as citizenship itself. Learn to recognize a US beneficiary early enough that the plan can be built around them, not patched after the fact.
- check_circle See the traps before they bite. Subpart F income from a controlled foreign corporation, PFIC dividends taxed as regular income, trust distributions that carry out years of accumulated income, and step-up rules that simply don't apply to alter ego, joint spousal, or spousal trusts on death — each one capable of turning a clean Canadian plan into double taxation.
- check_circle Walk away with techniques you can use. Streaming UNI to non-US beneficiaries before paying out the balance, the section 962 election trade-off, granting a settlor a power of appointment by will to preserve the step-up, and what does (and doesn't) change when a Canadian corporation continues as a ULC.
What You'll Learn
Across the 2-hour session, we move from why a US beneficiary changes the starting point, through the personal tax-rate mechanics, into the corporate attribution rules that catch foreign corporations and trusts, what actually happens when a Canadian corporation converts to a ULC, and finish with the trust and estate planning techniques that address the most common double-tax traps.
expand_more Why a US Beneficiary Changes the Plan
- The forms a US beneficiary actually takes: born in the US, moved to the US and become resident, or, over time, a green card holder or naturalized citizen
- Why a green card held for eight years is treated like citizenship for tax purposes, and why most US beneficiaries have no real intention of leaving
- Why "stuck with a US beneficiary" is the realistic starting point for planning, not an edge case to plan around
expand_more US Personal Tax Rates and the Qualifying Dividend Trap
- The two-rate US system: regular income taxed at federal rates topping out at 37%, versus the lower rate on qualifying dividends and long-term capital gains, capped at 20% plus the 3.8% net investment income tax
- How much more graduated US personal rates are than Canadian rates, and how filing a joint return widens that gap further
- Why not every dividend or capital gain qualifies for the lower rate: PFIC dividends and certain trust distributions carry out prior-year income taxed as regular income
- Why the US has no equivalent to Canada's dividend tax credit or refundable tax, and how flow-through entities like US LLCs are commonly used to address the resulting double taxation
expand_more Controlled Foreign Corporations and Subpart F
- What makes a foreign corporation a CFC, and how the ownership attribution rules get more complex when the corporation is held through a trust
- How subpart F income, the CFC's passive income and capital gains, gets imputed to and taxed in the hands of the US shareholder as regular income, with no special capital gains treatment and generally no foreign tax credit for the corporate tax
- The section 962 election: how it lets an individual claim a foreign tax credit at the corporate rate, why it still leads to double taxation when a dividend is later taken, and what the decision to elect actually involves
- The de minimis rule: when the foreign tax rate is at least 90% of the US corporate rate, the income falls outside subpart F entirely
expand_more Converting to a ULC: Tax-Free in Canada, a Liquidation in the US
- How a Canadian corporation becomes a ULC by migrating to Nova Scotia, Alberta, or British Columbia and continuing there, a transaction that's tax-free in Canada
- Why that same transaction is treated as a liquidation for US purposes, and what that can mean for a US shareholder or a trust that owns the corporation
- Why a ULC's lack of limited liability makes it unsuitable for an operating business but workable for an investment holding company or real estate, and how ownership through a US S corporation can restore liability protection
expand_more Trusts, UNI, and the Step-Up Mismatch
- Why a Canadian-resident trust can look problem-free for years, then create serious US tax exposure the moment accumulated income (UNI) is distributed
- The planning opportunity in streaming UNI to non-US beneficiaries before paying out the balance to US beneficiaries, particularly effective where there's significant corpus, such as in an estate
- Why deemed dispositions on a gift, on death (for alter ego, joint spousal, and spousal trusts), and under the 21-year rule don't produce a step-up for US purposes, and how that mismatch leads to double taxation
- Addressing the missing step-up directly, by granting the settlor a power of appointment by will to direct the ultimate beneficiary
Learn Directly from Tax Experts
Michael Cadesky is the managing partner at Cadesky Tax and a committed contributor to the tax and accounting professions since 1980, earning the title of Fellow from CPA Ontario. He is a past governor of the Canadian Tax Foundation, past chair of STEP Canada and STEP Worldwide, and past chair of the CPA Canada Tax Committee for Small and Medium-Sized Enterprises. Michael is also the co-author of 11 books on tax subjects and the author or co-author of numerous papers and articles on Canadian and international taxation.
As the President of Cadesky U.S. Tax Ltd., Dean has been providing U.S./Canada cross-border planning and compliance for over 30 years. He assists private clients with their personal, corporate, and estate planning needs, taking into account the unique challenges of integrating two independent tax systems.
Frequently Asked Questions
Quick answers about registering for this course.
Can I start right away? expand_more
Yes. US Beneficiaries was recorded in November 2021 and is available on demand. Register and begin immediately at your own pace.
Does this course provide CPD? expand_more
Yes. You will receive a verifiable CPD certificate for 2.0 hours of instructional learning upon completion.
What is included with registration? expand_more
Registration includes the full course recording, slides, detailed notes, and a knowledge assessment. You have one year of access to the program and materials from your date of registration. If you're registered for this year's Tax Seminar Series, you'll also find this session in the Archive.
Is there a cost to register? expand_more
Yes. Registration is $150 CAD and includes everything listed above. This is a one-time payment with no subscription required.