U.S. Resident Dying in 2026 with $850,000 in a Canadian RRSP and Ontario Rental Property: Non-Resident Withholding Tax, Section 116 Clearance, and What Canadian Heirs Must File

The Estate: A Former Canadian Living in Texas

Robert kept two Canadian assets after emigrating: the RRSP (because collapsing it on departure would have triggered a massive tax hit) and the Mississauga rental (because it cash-flowed and he expected the kids to want it eventually). Both decisions were reasonable. What was missing was a cross-border estate plan that anticipated what CRA would require at his death.

Canada has no formal inheritance tax. But for a non-resident dying with Canadian assets, three separate tax mechanisms activate — and each one has a filing requirement that carries personal liability for the executor if missed.

Tax Layer 1: Non-Resident Withholding on the $500,000 RRSP

When a non-resident dies holding a Canadian RRSP, the plan is deemed to have been fully deregistered immediately before death under section 146(8.8) of the Income Tax Act — identical to a resident death. The full $500,000 is treated as income.

The difference: because Robert was a non-resident, the RRSP issuer (the Big Six bank) is required to withhold Part XIII non-resident withholding tax before releasing the proceeds. The default rate is 25%.

Why 15% and not 0%?

Article XVIII of the Canada-U.S. Tax Treaty allows Canada to withhold up to 15% on lump-sum RRSP distributions to U.S. residents. The U.S. side then provides a foreign tax credit for the Canadian withholding on the deceased's final U.S. return (Form 1040) or the estate's return (Form 1041). The practical result: the 15% Canadian withholding is not a net cost to the estate if the U.S. filing is done correctly — it shifts from a Canadian tax to a credit against U.S. tax. But the 25% default has no automatic U.S. offset for the excess 10%.

Tax Layer 2: Deemed Disposition on the $350,000 Ontario Rental

Under section 70(5) of the Income Tax Act, Robert is deemed to have disposed of all his capital property at fair market value immediately before death. The Mississauga rental is "taxable Canadian property" — Canadian real estate owned by a non-resident — so Canada taxes the gain.

The capital gains inclusion rate is 50% on the first $250,000 of annual gains for individuals, and 66.67% above $250,000, per the 2024 federal budget (effective June 25, 2024). Robert's $150,000 gain falls entirely within the 50% tier, producing $75,000 of taxable income.

Non-residents of Canada are taxed on Canadian-source capital gains through a section 116 / T2062 filing process rather than through a standard T1 return (unless they elect under section 217). The effective federal rate on the taxable gain is approximately 25% of the taxable portion — roughly $18,750. There is no provincial income tax on non-resident capital gains from real property (the federal government collects an additional surtax in lieu of provincial tax for non-residents).

Tax Layer 3: The Section 116 Clearance Certificate — The Executor's Personal Risk

This is where most cross-border estates go sideways. Section 116 of the Income Tax Act creates a withholding obligation on the buyer or transferee of taxable Canadian property from a non-resident.

In Robert's case, the "transferee" is the estate distributing the Mississauga rental to Sarah and David. Before the property can be transferred:

1. The executor files Form T2062 (Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property) with CRA
2. CRA reviews the filing and determines the tax owing on the deemed disposition
3. The estate pays or secures the tax owing
4. CRA issues a clearance certificate confirming the tax is settled
5. Only then can the executor transfer the property to Sarah and David (or sell it) without personal liability

T2062 filing and the CRA timeline

The T2062 must be filed within 10 days of the disposition. In an estate, the "disposition" is the date of death (the deemed-disposition date under section 70(5)). Practically, most executors file within 30–60 days — CRA has not been aggressively penalizing short delays, but the 10-day rule is on the books.

CRA processing times for non-resident clearance certificates in 2026:

The clearance certificate is the single biggest bottleneck in settling Robert's Canadian estate. The RRSP can be distributed (with withholding) in weeks. The rental property sits in limbo for months.

Ontario Probate Fees on Canadian-Situs Assets

Ontario's Estate Administration Tax applies to assets located in Ontario that pass through the will. Robert was not an Ontario resident, but his rental property is Ontario-situs real estate. The executor may need an Ontario grant of probate to transfer title.

Ontario probate rate: $0 on the first $50,000, then $15 per $1,000 above $50,000.

If only the rental property is subject to Ontario probate: ($350,000 – $50,000) × $15 / $1,000 = $4,500.

If the RRSP also flows through Ontario probate (because no beneficiary was named and the bank requires a grant): the probate estate jumps to $850,000, and the fee becomes ($850,000 – $50,000) × $15 / $1,000 = $12,000.

Net Inheritance: What Sarah and David Actually Receive

Two scenarios — depending on whether the treaty rate was properly claimed and whether the RRSP had a named beneficiary.

Scenario A: Treaty rate claimed, RRSP has no named beneficiary (Robert's actual situation)

Scenario B: Default 25% withholding (treaty election missed)

Same estate, but the executor did not file NR301 before the RRSP was distributed:

The $50,000 withholding difference is recoverable by filing a Canadian non-resident return — but the refund takes 6–12 months and requires a cross-border accountant ($2,000–$4,000 in fees). Filing the NR301 upfront costs nothing.

What Sarah Must File — The Complete Checklist

As executor of a non-resident's Canadian estate, Sarah faces a filing burden that goes well beyond a standard domestic estate. Here is the sequence:

Three Moves Robert Could Have Made to Simplify the Estate

1. Name the children as RRSP beneficiaries

This single form — available at any Big Six bank branch — would have removed the $500,000 RRSP from probate, saving $7,500 in Ontario Estate Administration Tax. The withholding tax is identical either way, but the RRSP funds would have flowed directly to Sarah and David without waiting for a grant of probate.

2. File an annual section 216 election for the rental income

Robert did file section 216 elections during his lifetime (a smart move). This allowed him to report net rental income at graduated Canadian rates instead of the flat 25% gross withholding. More importantly for the estate, it established a clean paper trail of his Canadian filing history — making the T2062 clearance process smoother.

3. Consider a gradual RRSP meltdown before death

If Robert had withdrawn the RRSP in $50,000 annual increments over 10 years, each withdrawal would have been subject to 15% non-resident withholding under the treaty ($7,500/year), but the U.S. foreign tax credit would have offset the Canadian tax annually. The net cost of unwinding would have been lower, and the estate would have had no RRSP to deal with at death. The trade-off: RRSP withdrawals would have increased his U.S. taxable income in each year. Whether this wins depends on his U.S. marginal rate — a cross-border planner could have modeled it.

The Decision Lever That Mattered

On Robert's $850,000 Canadian estate, the NR301 treaty election on the RRSP was the single highest-dollar decision — $50,000 swings on whether the executor files one form with the bank before the RRSP is distributed. The Section 116 clearance is the single biggest timeline risk — the rental property cannot move for 4–8 months while CRA processes the certificate.

Cross-border estates are not harder because the tax rules are more complex (they are, but that is what professionals are for). They are harder because two countries' filing deadlines run concurrently, and a missed form on either side — NR301, T2062, Form 1040, Form 1041 — can cost five figures or lock the estate in administrative limbo for a year.

If you are a non-resident holding Canadian assets, the estate plan is not "have a will." The estate plan is: name your beneficiaries, brief your executor on the Section 116 process, and keep a cross-border estate planner in the loop.