Distributions from Canadian Estates to Non-Resident Beneficiaries

I suspect that many executors and administrators are not aware of Canada Revenue Agency’s requirements for distributions from Canadian estates to beneficiaries who are not Canadian residents.

Canada Revenue Agency requires that an executor or administrator withhold and remit a portion of the distribution (usually 25%) to Canada Revenue Agency. The beneficiary can avoid the withholding by obtaining a Certificate of Compliance from Canada Revenue Agency first. The withholding requirement is set out in s. 116 of the Income Tax Act. Canada Revenue Agency takes the position that this requirement applies to after-tax cash distributions of a share of the residue (what is left after payment of liabilities, specific gifts and specific amounts of cash) to those beneficiaries who are not residents of Canada.

This issue came to my attention from reading the minutes of the September 25, 2007 Victoria Wills and Trust Section meeting of the Canadian Bar Association, B.C. Branch.

This is the kind of issue that highlights the need for executors and administrators to get advice from experienced estate accountants as well as estate lawyers when administering estates.