Canadian Inheritance Tax When a $550,000 Ontario Estate Has a U.S. Beneficiary in 2026: T2062 Certificate, 25% Withholding on the Hamilton Rental, and the Year-End Wire Transfer Deadline

The Estate: $550,000, Three Asset Types, One Non-Resident Heir

A Hamilton man — call him Robert — dies in March 2026 at age 74. Widowed three years ago. One adult child, Lisa, who moved to Chicago in 2018 and is now a U.S. citizen. Lisa is the sole beneficiary and executor.

Robert's estate:

The table above is the first thing the executor needs to internalize: not all assets are created equal when the heir is a non-resident. Two of the three flow to Lisa in Chicago without Section 116 complications. The rental property is the one that creates the holdback obligation, the T2062 filing, and the timeline pressure.

Canada Does Not Have an Inheritance Tax — But the Estate Still Pays

Canada eliminated its federal estate tax in 1972. Lisa, as the beneficiary, does not owe Canada a cent on the inheritance. But Robert's estate owes plenty — through three distinct mechanisms that apply regardless of where the heir lives:

1. Deemed disposition at death under section 70(5) of the Income Tax Act — Robert is deemed to have sold all capital property at fair market value immediately before death. Capital gains tax is owed on the terminal return.
2. RRSP income inclusion under section 146(8.8) — the full $200,000 RRSP balance is included as ordinary income on the terminal return because there is no surviving spouse or common-law partner for a tax-deferred rollover.
3. Ontario probate fees (Estate Administration Tax) — $0 on the first $50,000, then $15 per $1,000 above that. On $550,000: $7,500.

These are the same taxes any Ontario estate would face with a Canadian-resident beneficiary. The additional complexity for Lisa is Section 116 — the non-resident withholding regime that applies specifically to the Hamilton rental property.

Asset 1: The $200,000 RRSP — Ordinary Income, No Section 116 Issue

The RRSP is the simplest asset in this estate — and the most expensive on the terminal return. Under section 146 of the ITA, the full $200,000 is included as ordinary income on Robert's final T1. No capital gains treatment. No $250,000 tiered threshold. Straight income, stacked on top of any other income Robert earned in 2026 before his death.

The key point for Lisa: the RRSP has nothing to do with Section 116. An RRSP is not “taxable Canadian property” under the non-resident withholding rules. The tax is paid on the terminal return by the estate. Once paid, the after-tax RRSP proceeds can be wired to Lisa in Chicago without any holdback.

Asset 2: The $150,000 in Non-Registered Equities — Capital Gains, No Section 116

Robert held $150,000 in publicly traded Canadian equities in a non-registered account. His adjusted cost base was $120,000. Deemed disposition under section 70(5) triggers a $30,000 capital gain.

At the 50% inclusion rate (the gain is well under the $250,000 lower-inclusion threshold), the taxable capital gain is $15,000. At a marginal rate of ~48–53% (stacked on top of the RRSP income), the tax is roughly $7,000–$8,000.

The part that matters for Lisa: publicly traded securities listed on a designated stock exchange are not taxable Canadian property for a non-resident under section 116. The CRA's own guidance confirms this exemption. The executor liquidates the equities, pays the capital gains tax on the terminal return, and wires the after-tax proceeds to Lisa — no T2062, no 25% holdback, no clearance certificate required.

Asset 3: The Hamilton Rental Property — This Is Where Section 116 Hits

The Hamilton rental property is the problem asset. It is taxable Canadian property under section 248(1) of the ITA — Canadian real property is always taxable Canadian property, regardless of value, use, or the identity of the owner.

When this property is sold by the estate or distributed to Lisa (a non-resident), Section 116 of the ITA imposes a 25% withholding obligation on the gross sale price.

The Capital Gain on the Terminal Return

First, the deemed disposition at death:

This capital gains tax is paid on the terminal return — by the estate, in Canada. It has nothing to do with Section 116 withholding. The Section 116 issue arises separately, when the executor distributes the property or its proceeds to Lisa.

The T2062 Application: Step by Step

Here is how the T2062 process works for this Hamilton rental:

1. Determine the disposition. If the estate sells the rental property to a third-party buyer, the sale is the disposition. If the estate transfers the property to Lisa in kind, the transfer is the disposition. Either way, Section 116 applies because the ultimate recipient is a non-resident.
2. File Form T2062 with the CRA within 10 days of the disposition. Include the property description, sale price (or FMV if transferred in kind), the vendor's (or estate's) tax identification, and the estimated tax owing. The executor files on behalf of the non-resident beneficiary.
3. Withhold 25% of the gross proceeds. On a $200,000 property, that is $50,000. This amount is held in the estate account — not distributed to Lisa — until the CRA issues the certificate of compliance.
4. Wait for the CRA certificate. Processing time: typically 4 to 16 weeks. The CRA reviews the T2062, confirms the tax owing (which should match the terminal return calculations), and issues a certificate of compliance.
5. Remit or release. If the actual tax owing on the gain is less than the 25% holdback ($50,000), the excess is released to the estate for distribution. The actual capital gains tax on a $60,000 gain is approximately $15,300 — meaning roughly $34,700 of the holdback is eventually released once the certificate arrives.

The Smarter Path: Sell Through the Estate, Not Through Lisa

There is a critical distinction that can simplify the entire Section 116 process: who sells the property matters.

If the estate sells the Hamilton rental before distributing proceeds, the estate is the vendor. A graduated rate estate (GRE) — which Robert's estate qualifies as for the first 36 months after death — is a Canadian-resident trust. A Canadian-resident vendor is not subject to Section 116 withholding. The estate pays the capital gains tax on the terminal return (the deemed disposition already triggered the gain at death), reports any further gain on the T3, and distributes the net cash to Lisa.

If the estate transfers the property to Lisa in kind — giving her the deed — and she then sells it, she is the non-resident vendor. Section 116 applies in full. The buyer's lawyer withholds 25% of the gross sale price and remits it to the CRA.

Ontario Probate Fees: $7,500 — or $4,500 With One Form

Ontario's Estate Administration Tax charges $0 on the first $50,000 and $15 per $1,000 (1.5%) above that. On the full $550,000 estate:

Compare Ontario's probate to other provinces on the same $550,000 estate:

The Year-End Wire Transfer Pressure — and Why the Executor Should Not Rush

Lisa wants her inheritance before December 31, 2026. From her perspective, receiving the funds in 2026 may simplify her U.S. tax reporting — she can file Form 3520 (required for foreign inheritances exceeding US$100,000) in the same year she reports any related income or credits.

The executor faces a conflict: Lisa wants speed, but the CRA clearance certificate on the rental property takes 4 to 16 weeks. If the property sells in August 2026 and the T2062 is filed promptly, the certificate might arrive by October — or it might not arrive until January 2027.

What the Executor Can Wire Before December 31

The executor can wire the RRSP and equity proceeds — roughly $270,000–$280,000 after tax — to Lisa before December 31 without any Section 116 risk. The rental property proceeds (approximately $180,000–$185,000 after selling costs) are held until the CRA certificate arrives.

Penalty Exposure: What Happens If the T2062 Is Late or Missing

The T2062 must be filed within 10 days of the disposition. If it is late:

• Late-filing penalty: $25/day, minimum $100, maximum $2,500. A minor nuisance on a $200,000 property — but it signals non-compliance to the CRA.
• Section 116(5) liability: If the executor distributes proceeds without the certificate and without remitting the 25%, the executor is personally liable for the full withholding amount — $50,000 on this property.
• CRA assessment: The CRA can assess the executor for the withholding amount plus interest at the prescribed rate. The executor must then pursue the non-resident beneficiary to recover the amount — across an international border. Good luck.

The U.S. Beneficiary's Filing Obligations

Lisa has her own filing requirements in the United States:

1. Form 3520 (Annual Return to Report Transactions with Foreign Trusts and Receipt of Certain Foreign Gifts). Required because the inheritance exceeds US$100,000. This is an information return — it does not generate tax. But the penalty for failing to file is up to 25% of the gross inheritance value. On a $550,000 CAD inheritance, that penalty could exceed US$100,000.
2. Foreign tax credits. Under the Canada-U.S. Tax Treaty (Article XVIII for pensions, Article XIII for gains), Lisa can claim a credit on her U.S. return for Canadian tax paid on the RRSP income and capital gains. Since the U.S. estate tax exemption is US$15 million per individual (post-One Big Beautiful Bill Act, effective 2026), no U.S. estate tax applies on this $550,000 estate.
3. Cost basis step-up. For the Hamilton rental, if Lisa inherits and later sells it, her U.S. cost basis steps up to FMV at death ($200,000). Any Canadian capital gains tax already paid on the deemed disposition generates a foreign tax credit against U.S. tax on the same gain.

Province-by-Province Comparison: $550,000 Estate With a Non-Resident Heir

The Section 116 withholding rules are federal — they apply regardless of province. But the probate fees and provincial income tax rates differ. Here is how the same $550,000 estate looks across four provinces:

The Section 116 withholding rate is the same everywhere — it is federal. The provincial differences are in probate and marginal tax rates. Alberta's combination of $525 max probate and a lower top rate saves roughly $17,000 compared to Ontario on this estate.

The Executor's Complete Timeline: March 2026 to April 2027

1. March 2026 — death. Executor obtains death certificate, notifies financial institutions and the RRSP custodian. Contacts an estate lawyer for the Certificate of Appointment of Estate Trustee (Ontario probate).
2. April–May 2026 — probate granted. Ontario probate takes 4–8 weeks. Estate Administration Tax of $7,500 (or $4,500 if RRSP bypasses probate) paid at filing. Executor collapses the RRSP — the custodian releases $200,000 to the estate account and issues a T4RSP slip.
3. May–June 2026 — liquidate equities. Executor sells the non-registered portfolio ($150,000). Capital gains of $30,000 are noted for the terminal return. Proceeds deposited to estate account.
4. June–August 2026 — list and sell the Hamilton rental. The estate is the vendor (GRE is Canadian-resident). Property sells for $200,000. Proceeds to estate account. If selling through the estate, no Section 116 holdback required on the sale itself.
5. July–September 2026 — wire RRSP and equity proceeds to Lisa. After setting aside an estimated $80,000–$90,000 for the terminal-return tax liability, the executor can distribute the RRSP and equity proceeds — approximately $270,000–$280,000 — to Lisa before year-end. No Section 116 issue on these assets.
6. September–November 2026 — distribute rental proceeds. If the estate sold the property as a Canadian-resident GRE, the executor can distribute the net rental proceeds to Lisa after confirming the terminal-return tax reserve is adequate. If the T2062 was required (e.g., property transferred to Lisa before sale), wait for the CRA certificate.
7. April 30, 2027 — file the terminal return. Include the $200,000 RRSP income, $30,000 capital gain on equities, and $60,000 capital gain on the rental property. Pay the balance owing. Apply for a clearance certificate (Form TX19) before making the final distribution.
8. Post-filing — obtain TX19 clearance certificate. The CRA issues this to confirm all taxes have been paid. Without it, the executor remains personally liable for any CRA reassessment. Once the TX19 is in hand, distribute any remaining holdback to Lisa and close the estate.

The Decision Lever That Mattered

The single highest-impact decision in this estate is selling the Hamilton rental through the estate rather than transferring it to Lisa. An in-kind transfer to a non-resident triggers Section 116 withholding — $50,000 held back, a T2062 filing, and 4–16 weeks of CRA processing before Lisa sees the money. Selling through the GRE avoids the holdback entirely because the estate is a Canadian-resident vendor.

The second lever: naming Lisa as the direct beneficiary on the RRSP. That one form saves $3,000 in Ontario probate and accelerates the distribution timeline — the RRSP custodian releases funds directly to Lisa after receiving the death certificate, without waiting for probate.

Together, these two moves save the estate $3,000 in probate, avoid $50,000 in temporary holdback, and compress the distribution timeline by months. The part most executors with non-resident heirs miss: the cross-border complication is not the inheritance itself — it is the real property. Every other asset in this estate flows freely.