Canada Non-resident tax withheld on inhertience

[ksmith55387]

I have Canada and US citizenship. I have been living in the US for 18 years. I am considered a non-resident for Canadian tax purposes. My mother recently passed away. I was the beneficiary on some of her investment accounts so the bank is going to send me a check for those accounts without going through the estate. They are saying they need to withhold non-resident tax on those amounts. Is that correct? Will I be able to get the tax back later? Someone mentioned filing a 116 clearance request, but when I looked that up it only seems to apply to real estate transactions. Will I have the same problem on any money distributed by the her estate?

[JGCA]

Your Mother on her death is deemed to have sold her property at FMW and she is CND so no non resident tax applies on her capital property such as cash in the bank this comes out with no tax to you , only any interest being earned will have non resident tax if you are the beneficiary and live in the US but nothing on her capital. Be careful however you need to get a clearance certificate from CRA before you begin to distribute property even cash from her estate otherwise you are personally liable for any tax she owes.

[rlb]

To elaborate on what JGCA has said: The executor of her estate will need to file a final year Canadian income tax return for her. Even though, as direct benficiary, you may receive the investment accounts directly and not as part of the estate, if there are accumulated capital gains in these accounts (evaluated on the date of death, whether actually realized or not) or other income such as interest or dividends on which income tax has not yet been paid, then these capital gains and income must be reported in that final return. The income tax on these will be assessed to the estate and paid first, if possible, out of any other available funds in the estate. If there are not enough funds in the estate, then you will have to come up with the tax and you would be personally liable for it.

If the amount you receive is more than US$100,000, be absolutely sure to file an IRS form 3520 for it. This is infomation reporting only (no tax is due) but critical to avoid monstrous penalties.

My wife has just gone through this scenario.

By the way, this needs to be taken care of in estate planning. Example: a Canadian has an RRSP of $200,000 and other (after tax) investments of $200,000. She decides to leave the RRSP to her daughter as direct beneficiary (outside the estate) and the investments to her son. This is a bad thing. What happens is this: the daughter gets the full $200,000 in the RRSP, and the son gets whatever is left of the $200,000 investments after taxes on both the RRSP amount, and any capital gains in the investment account, are taken out. The son gets a lot less than the daughter, maybe even only a small fraction.

-- non-expert

[ksmith55387]

Thanks for the replies.

so if "... no non resident tax applies on her capital property such as cash in the bank this comes out with no tax to you", why does the bank tell me they are going to have to withhold non-resident tax? Is there anyway I can avoid them withholding the tax?