CRA indicates that the daughter of the deceased, who is his sole beneficiary and the sole executor, is not related to the estate

A non-resident estate holding the Canadian condo of the Canadian deceased and cash, sells the condo for cash and utilizes the principal residence exemption to exempt the gain, and then distributes cash to the sole beneficiary who is the U-S.-resident daughter of the deceased (who also serves as the estate’s sole executor).

After noting its general position that “where a trust distributes assets in satisfaction of a non-resident beneficiary's capital interest in the trust, the beneficiary is considered to have disposed of that interest,” CRA indicated that, unlike the taxable Canadian property definition, the test under Art. XIII(3)(b)(iii) of the Canada-U.S. Treaty as to whether the value of an interest in a trust is derived principally from real property situated in Canada was a point in time test, so that it would not matter that the cash held by the estate at the time of the distribution was derived from Canadian real estate. Accordingly, s. 116(6.1)(a) would be met because the property would be “treaty-protected property” at the time of the distribution. Furthermore, a notice was not required to be given by the daughter beneficiary under s. 116(6.1)(b) because the estate of her parent (of which she was the sole executor) was not considered to be related to her. Thus, no s. 116 certificate would be required for the distribution.

Neal Armstrong. Summaries of 25 July 2022 External T.I. 2021-0905871E5 under s. 150(1.1)(b)(iii) and s. 116(6.1).