Newcomer Dying in Year 3 of Canadian Residency With a $600,000 Mixed Estate: Foreign Asset Deemed Disposition, Non-Resident Heir Withholding, and What the Family Abroad Receives in 2026

The Scenario: Brampton Newcomer, Age 48, Three Years in Canada

A 48-year-old software engineer originally from Hyderabad, India. Arrived in Canada in August 2023 as a permanent resident. Settled in Brampton, Ontario. Single (never married). Dies unexpectedly in June 2026 — three years after becoming a Canadian tax resident.

His will names two beneficiaries: a younger brother in Hyderabad (non-resident of Canada) who receives the RRSP and half the remaining estate, and an older sister in Mississauga (Canadian permanent resident since 2020) who receives the other half. No spouse, no children. The executor is the sister.

Step 1: The ACB Reset at Immigration — Why Only 3 Years of Growth Is Taxable

Under section 128.1(1)(b) of the Income Tax Act, when this newcomer became a Canadian tax resident in August 2023, the CRA deemed him to have acquired every worldwide asset at its fair market value on that date. This is the ACB reset.

The same reset applies to the Hyderabad apartment. Purchased years ago for the equivalent of $80,000 CAD, it was worth $180,000 CAD at immigration. Canadian ACB: $180,000. At death: $200,000. Canadian capital gain: $20,000.

Step 2: Deemed Disposition on the Terminal Return — Section 70(5)

At death, section 70(5) of the Income Tax Act deems the deceased to have disposed of all capital property at fair market value immediately before death. This triggers capital gains tax on the terminal return (the final T1).

Combined capital gains of $60,000 fall entirely within the first $250,000 tier at 50% inclusion (the two-thirds rate on gains above $250K does not apply here). Total taxable capital gain income: $30,000. Plus the $50,000 RRSP collapse on the terminal return. Grand total of additional taxable income: $80,000.

At $125,000 of taxable income in Ontario, the combined federal + provincial marginal rate is approximately 43.41% on the top portion. The estimated income tax on the terminal return (above what was already withheld on salary): roughly $28,000–$32,000, depending on credits and deductions.

Step 3: The RRSP Paid to a Non-Resident — Part XIII Withholding

The brother in Hyderabad is named as the RRSP beneficiary. Because he is a non-resident of Canada, the payment is subject to Part XIII withholding tax — not the normal income-tax treatment.

The treaty saves $5,000 on this RRSP alone. But claiming the treaty rate is not automatic — the executor must file CRA Form NR301 (Declaration of Eligibility for Benefits Under a Tax Treaty for a Non-Resident) with the financial institution before or at the time of payment. Without that form, the institution withholds the full 25%.

Step 4: Section 116 Clearance Certificate — The Non-Resident Heir Bottleneck

The brother in Hyderabad is entitled to half the Canadian investment portfolio (approximately $175,000 worth of ETFs and stocks). Because he is a non-resident, section 116 of the Income Tax Act imposes a clearance-certificate requirement before the estate can distribute his share.

The mechanics:

• The estate (or the purchaser, if assets are sold) must withhold 25% of the gross proceeds attributable to the non-resident's share until a clearance certificate is obtained. On $175,000, that is $43,750 held back.
• The executor applies to the CRA using Form T2062 (Request by a Non-Resident of Canada for a Certificate of Compliance). The CRA reviews the transaction, assesses any tax owing, and issues the certificate.
• Processing time: 6–18 months in practice. During this period, the brother cannot receive his full share. The $43,750 holdback sits in the estate account.
• If the estate distributes without obtaining the certificate, the executor becomes personally liable for the non-resident's Canadian tax obligation on those proceeds.

Step 5: Ontario Probate — $14,250 on What Passes Through the Will

Ontario's Estate Administration Tax applies at $0 on the first $50,000 and $15 per $1,000 (1.5%) on everything above $50,000. The calculation depends on which assets pass through the will versus which bypass probate entirely.

Ontario probate on $350,000: ($350,000 − $50,000) × $15/$1,000 = $4,500. Not the $14,250 that a $1M estate would face, but still a meaningful cost that could have been reduced by structuring the brokerage account with a joint owner or transfer-on-death designation.

Step 6: T1135 — Foreign Income Verification on the Terminal Return

The Hyderabad apartment has a cost amount (ACB) of $180,000 — above the $100,000 threshold for T1135 filing. The executor must file Form T1135 (Foreign Income Verification Statement) with the terminal T1 return for the 2026 tax year.

The T1135 does not create additional tax — it is a disclosure form. But failure to file carries a penalty of $25/day up to $2,500, and the CRA can extend the reassessment period indefinitely for years where the T1135 was not filed. If the deceased failed to file T1135 in 2023, 2024, or 2025 (the prior years of Canadian residency), the executor should file those delinquent forms with the terminal return and apply for penalty relief under the CRA's voluntary disclosure program.

The Full Tax Bill: What This $600,000 Estate Actually Pays

What Each Heir Actually Receives: Resident vs. Non-Resident

This is where the resident/non-resident asymmetry becomes concrete. Both heirs are entitled to roughly equal shares of the estate (excluding the RRSP, which goes entirely to the brother). But the net amounts they receive differ substantially.

The brother receives more in total (he gets the RRSP), but he faces $7,500 in Part XIII withholding the sister would never pay, plus a 6–18 month delay on $43,750 of his Canadian investment share due to the Section 116 clearance requirement. The sister gets her full share within the normal estate timeline — typically 3–6 months in Ontario.

The Two Decisions That Would Have Saved $38,000

Looking at this estate in hindsight, two planning decisions — both of which cost $0 to implement — would have materially changed the outcome.

The Hyderabad Apartment: Indian Succession Law and Double-Tax Relief

The Hyderabad apartment is governed by Indian succession law for transfer purposes, but the Canadian deemed disposition at death still applies because the deceased was a Canadian tax resident. The $20,000 capital gain ($200,000 FMV − $180,000 ACB) is taxed on the Canadian terminal return.

India does not currently impose an inheritance tax. However, if India taxes capital gains on the property transfer at death (under Indian domestic law), the executor can claim a foreign tax credit on the Canadian terminal return under the India-Canada tax treaty to avoid double taxation. The credit is limited to the lesser of the Canadian tax attributable to the Indian-source income and the actual Indian tax paid.

Timeline: What the Executor Faces

The cross-border nature of this estate extends the timeline by 6–12 months compared to a purely domestic Ontario estate. The Section 116 clearance is the primary bottleneck — and it is entirely avoidable with the right beneficiary and ownership structure.

Lessons for Newcomers With Mixed Estates

This estate is modest — $600,000, three years of Canadian residency, straightforward assets. And yet the tax and administrative costs reached ~$50,000 (8.3% of the estate), with a potential $38,000 of that being avoidable. The gap is not exotic tax planning — it is basic beneficiary designation and account ownership decisions that most newcomers never revisit after their first year in Canada.

• Review RRSP beneficiary designations annually. If your primary beneficiary is a non-resident, understand the Part XIII cost. Consider naming a Canadian-resident family member who can redistribute privately.
• File T1135 every year. The penalty for missing it is modest ($25/day), but the CRA's ability to reopen any tax year indefinitely is not. Three years of unfiled T1135s on an estate creates unnecessary executor liability.
• Understand the ACB reset. It protects you — only post-immigration appreciation is taxable in Canada. But it requires accurate documentation of asset values at the date you became resident. If you cannot prove the FMV at immigration, the CRA can assess based on original purchase cost, eliminating the benefit of the reset.
• Consider joint ownership for Canadian investment accounts if you have a Canadian-resident family member you trust. Joint ownership bypasses both probate and Section 116 on the surviving joint owner's receipt — a significant benefit when the alternative heir is non-resident.

For the full guide to how deemed disposition, RRSP collapse, and probate fees combine on Canadian estates, see our inheritance tax Canada 2026 complete guide. For a larger newcomer estate scenario with $2M in global assets, see our newcomer estate planning worked example. For provincial probate fee comparisons, see our probate fees Canada comparison guide. And for the capital gains deemed disposition mechanics in detail, see our capital gains at death guide.