Section 116 Clearance Certificate: What Non-Resident Beneficiaries Need to Know

Most executors in British Columbia know they need a CRA clearance certificate before distributing estate assets to beneficiaries. What many don't know is that when any beneficiary is a non-resident of Canada, a second, entirely separate clearance process applies — and missing it can make the executor personally liable for a tax bill worth hundreds of thousands of dollars.

This is the Section 116 clearance certificate. It is not the same as the standard TX19 clearance certificate every estate needs. It is a distinct requirement under the federal Income Tax Act, and it applies specifically when proceeds from "taxable Canadian property" are being distributed to someone who does not live in Canada.

What Section 116 Actually Requires

Section 116 of the Income Tax Act creates a withholding obligation. When a Canadian property — real estate, shares of a private corporation, certain partnership interests — is sold and the proceeds go to a non-resident, the CRA requires that a portion of those proceeds be withheld and remitted to the government before the rest is paid out.

The standard withholding rate is 25% of the gross proceeds. In some circumstances involving depreciable property, it can be 50%.

The Section 116 clearance certificate is the mechanism that limits or eliminates this withholding. Once the executor files Form T2062 and receives the certificate, the CRA confirms the exact amount of tax owing on the disposition. The executor then remits only that amount — often far less than 25% of gross proceeds, particularly when the property has a high adjusted cost base — and is protected from further liability.

Without the certificate, the executor who pays the full proceeds to a non-resident is personally on the hook for whatever the CRA calculates as the withholding amount. This liability survives distribution. The non-resident beneficiary may have already spent the money, but the CRA will come to the executor.

When It Applies to BC Estates

In British Columbia, the most common trigger is real estate. If a BC resident dies and leaves a property — a Vancouver condominium, a house in Victoria, a cabin on Salt Spring Island — to an adult child who has been living in the United States, United Kingdom, Australia, or anywhere outside Canada for more than 183 days in the preceding year, Section 116 applies to the sale of that property.

Other assets that qualify as taxable Canadian property include:

• Shares in a private Canadian corporation (common for business-owning families)
• Interests in Canadian partnerships or trusts
• Certain resource properties

Notably, publicly traded shares (stocks in Canadian companies listed on a recognized exchange) are generally exempt from Section 116. So is the principal residence exemption when it applies to the deceased's primary home — though the principal residence claim must be properly filed on the deceased's final T1 return.

The executor does not need to be non-resident for this to apply. A Canadian sibling acting as executor, distributing proceeds to a non-resident American sibling, still faces the Section 116 obligation.

The Filing Requirement and Timeline

The executor must file Form T2062 with the CRA's International Tax Services Office (ITSO) within 10 days of the property being disposed of (sold or transferred). Filing promptly limits exposure to the personal withholding liability.

In practice, most real estate lawyers handling BC estate sales will flag this requirement at closing. The problem is that by the point the property is listed and sold, months may have already passed since the death — months during which the executor may have made other distributions, accumulated interest on estate accounts, or communicated to beneficiaries that funds are coming imminently.

The better approach is to identify any non-resident beneficiaries at the outset and flag the Section 116 requirement before the property goes to market.

Form T2062 requires:

• The property's description and address
• The purchase price (original cost to the deceased)
• The adjusted cost base (purchase price plus capital improvements)
• The sale proceeds (or fair market value for a non-arm's-length transfer)
• A description of the parties: the deceased, the estate, the non-resident beneficiary

The CRA reviews the filing, calculates the actual capital gain, determines the tax owing, and issues the certificate. Processing typically takes 3 to 6 months. For complex estates — multiple properties, business interests, disputed valuations — it can take longer.

This timeline stacks on top of the standard estate administration timeline. The executor also needs the regular TX19 clearance certificate before distributing the estate generally, and that takes 4 to 6 months for domestic beneficiaries or 14 to 17 months when non-resident complications are involved. Non-resident BC estates should plan for 14 to 17 months minimum from date of death to final distribution.

If you are an executor dealing with a non-resident beneficiary, the BC Survivor Benefits Navigator covers the full estate administration sequence, including the Section 116 process and how it interacts with the standard CRA clearance certificate timeline.

A Practical Example

A BC resident dies leaving a house in Richmond to her daughter, who has lived in Seattle for the past eight years and is a US permanent resident. The house was purchased in 1998 for $280,000 and sells for $1,400,000 in 2026.

The capital gain is $1,120,000 (ignoring capital improvements for simplicity). The applicable capital gains tax at the estate level, at the federal inclusion rate, would result in a specific tax liability. The executor files T2062. The CRA reviews and issues a Section 116 certificate specifying the withholding amount — say, $150,000.

The executor remits $150,000 to the CRA and pays the daughter the remaining $1,250,000. The executor is protected from further liability.

Had the executor wired the full $1,400,000 to Seattle without obtaining the certificate, they would be personally liable to the CRA for the entire withholding amount — potentially $350,000 (25% of gross proceeds) — even if the daughter can't or won't return the funds.

US Tax Considerations

Non-resident US beneficiaries must also report the Canadian inheritance on their US tax returns. The US taxes its citizens on worldwide income, regardless of where the income was earned. A US citizen receiving proceeds from the sale of a Canadian property must report the capital gain to the IRS.

The good news is that the Canadian withholding tax paid under Section 116 can often be applied as a foreign tax credit on the US return, reducing or eliminating double taxation. However, Canadian and US tax systems define capital gains differently — the cost base calculations, inclusion rates, and timing rules diverge. A cross-border accountant familiar with both the CRA and IRS is essential for non-resident beneficiaries in this situation.

This cross-border complexity is a significant reason why non-resident estates are the most time-consuming and expensive to settle. Budget for professional fees accordingly.

Section 116 Versus the Standard Clearance Certificate

These are two separate processes:

Most non-resident BC estates will need both. The Section 116 process runs in parallel with the regular estate tax process — they are not sequential.

What Executors Should Do First

If you discover that any beneficiary of a BC estate is a non-resident of Canada:

1. Identify all assets that qualify as taxable Canadian property before proceeding with any sale or transfer
2. Consult a Canadian tax lawyer or cross-border accountant before the property is listed or transferred
3. File Form T2062 with the CRA's International Tax Services Office within 10 days of any disposition
4. Do not distribute proceeds to the non-resident beneficiary until the Section 116 certificate is received
5. Coordinate the Section 116 timeline with the standard TX19 clearance certificate process

The stakes for getting this wrong are high — personal liability for the full withholding amount, with no recourse against a beneficiary who has already spent the proceeds. The cost of getting it right is a few months of patience and a professional fee.

The BC Survivor Benefits Navigator includes detailed guidance on CRA clearance requirements for BC estates — including the Section 116 process, the TX19 application sequence, and the step-by-step checklist that protects executors from personal tax liability throughout.

See more British Columbia guides →