When a capital dividend (arising from insurance proceeds) received by an estate is used for the payment of estate taxes, would the distribution of the remainder of the estate to the heirs be excluded from the application of ss. 212(11) and 212(1)(c)? CRA responded:
[A]lthough an amount paid in favour of a Canadian estate as a capital dividend is used for the payment of estate taxes, the question of determining if a subsequent distribution in favour of non-resident beneficiaries can reasonably be considered to be a distribution of an amount received by the estate, or derived from such an amount, as a dividend is a question of fact. … Where applicable, the distribution would be subject to a withholding tax pursuant to subsection 212(11) and paragraph 212(1)(c)… .