When issuing a s. 116 certificate, CRA will not require s. 116 withholding on the portion of redemption proceeds generating a deemed s. 84(3) dividend

A corporation resident in Canada redeems shares held by a non-resident, resulting in a deemed dividend under s. 84(3) and the application of the s. 116 rules.

CRA noted that there is no carve-out for a deemed dividend (such as that found in s. 54 - “proceeds of disposition” – (j)) from the application of the s. 116 rules to the total redemption proceeds. Thus, there would be a required remittance under s. 116(5) of 25% of the total redemption proceeds notwithstanding that the deemed dividend portion was also subject to Part XIII withholding.

However, there is an existing CRA position in respect of deemed dividends that arise under s. 212.1. According to this position, the amount of the required remittance under s. 116 where a certificate is issued will not apply to the base on which the s. 212.1 Part XIII remittance was computed, i.e., it will not apply to the deemed dividend portion of the proceeds. This position, which was previously applicable to s. 212.1, will now be extended, and IC72-17R6 will be amended accordingly.

That said, until such time as a s. 116 certificate is issued, the required remittance under s. 116(5) will remain at 25% of the cost to the purchasing corporation, including the deemed dividend portion. As a result, there will be a double remittance until the s. 116 certificate is granted.

Neal Armstrong. Summary of 13 May 2026 IFA Roundtable, Q.4 under s. 116(5).