An estate (the “Estate”) which was not resident in Canada was created on the death of a resident individual who held a Canadian condo (representing over 50% of the assets) and cash. The sole executor and beneficiary was the deceased’s daughter, who was a U.S. resident. The capital gain from the deemed disposition of the condo on death qualified for the principal residence exemption. The Estate sold the Property in February 2021, after receiving a s. 116 certificate, and no capital gain resulted (and its net income for 2021 was nil), and since the sale, its assets have consisted solely of cash. The non-resident beneficiary did not dispose of any other taxable Canadian property in the 2021 taxation year and does not have any outstanding liability under the Act with respect to any previous taxation years.
Is a s. 116 certificate required for a cash distribution to the non-resident beneficiary?
After noting its general position that “where a trust distributes assets in satisfaction of a non-resident beneficiary's capital interest in the trust, the beneficiary is considered to have disposed of that interest,” CRA indicated that, unlike the taxable Canadian property definition, the test under Art. XIII(3)(b)(iii) of the Canada-U.S. Treaty as to whether the value of an interest in a trust is derived principally from real property situated in Canada was a point in time test, so that it would not matter that the cash held by the estate at the time of the distribution was derived from Canadian real estate. Accordingly, s. 116(6.1)(a) would be satisfied because the property would be “treaty-protected property” at the time of the distribution. Furthermore, a notice was not required to be given by the daughter beneficiary under s. 116(6.1)(b) because the estate (of which she was the sole executor) was not considered to be related to her. Thus, no s. 116 certificate would be required.