13 May 2026 IFA Roundtable Q. 4, 2026-1087931C6 - Section 116 Cash Flow Issues on Share Redemption from a Non-Resident

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Have there been any updates or changes regarding CRA's policy for administrative relief for the hypothetical situation provided? If the answer to the above is No, to what extent would paragraph 248(28)(a) provide relief for this hypothetical situation? Would CRA recommend to Finance that proper changes be made to address this double taxation scenario?

Position: See below.

Reasons: Wording of the Act.

2026 IFA Annual Conference - CRA Roundtable

Question 4 - Section 116 Cash Flow Issues on Share Redemption from a Non-Resident

Background

• A corporation resident in Canada (the “Purchaser”) redeems shares held by a non-resident of Canada (the “Vendor”).
• On the redemption, a dividend is deemed to have been paid by the Purchaser and received by the Vendor pursuant to subsection 84(3) of the Act.(footnote 1)
• In accordance with subsection 212(2), the deemed dividend is subject to Part XIII withholding tax (25% absent treaty reduction).
• The redeemed shares constitute taxable Canadian property (“TCP”) such that section 116 applies and the resulting gain on the disposition is not exempt from taxation pursuant to any bilateral tax treaty.
• The Vendor has applied for a certificate under subsection 116(2); however, the certificate has not yet been issued at the time the shares are redeemed.
• In the absence of the certificate, subsection 116(5) imposes on the Purchaser the obligation to remit 25% of any amount by which the Purchaser’s cost exceeds the certificate limit (which is effectively nil where no certificate has been provided).
• The Vendor and the Purchaser deal with each other at arm’s length.

Because the amount required to be remitted under subsection 116(5) is computed by reference to the Purchaser’s cost, it is not reduced by the amount of any deemed dividend under subsection 84(3). In a CRA Technical Interpretation published on February 10, 2011 (CRA View 2010-0387151E5), the CRA opined that the legislation, in the absence of a certificate, required that the Purchaser remit both Part XIII tax pursuant to subsection 212(2) as well as an amount under subsection 116(5), leading to duplicative remittances.

While it does not provide relief from subsection 116(5), a CRA Technical Interpretation published on December 6, 1994 (CRA View 9406027), states that, where a disposition results in no capital gain and no Part I tax liability, and is not part of an avoidance series, the acceptable security under paragraph 116(2)(b) may be nil.

Questions

Have there been any updates or changes regarding CRA’s policy for administrative relief for this hypothetical situation?

If the answer to the above is No, to what extent would paragraph 248(28)(a) provide relief for this hypothetical situation?

Would CRA recommend to Finance that proper changes be made to address this double taxation scenario?

CRA Response

Where a corporation resident in Canada redeems shares held by a non-resident, and the shares are TCP, as defined in subsection 248(1), and are not excluded property, as defined in subsection 116(6), two separate tax consequences may arise.

First, subsection 84(9) deems the non-resident shareholder to have disposed of the shares to the redeeming corporation. Under subsection 84(3), to the extent that the amount paid by the corporation on the redemption exceeds the paid-up capital (“PUC”) in respect of the shares immediately before that time, the corporation is deemed to have paid a dividend that the shareholder is deemed to have received. Where the shareholder is a non-resident, that deemed dividend is subject to Part XIII tax under subsection 212(2), and the corporation is required to withhold and remit the tax under subsection 215(1), subject to any applicable treaty reduction.

Second, the deemed disposition under subsection 84(9) may give rise to a capital gain or loss for Part I tax purposes. If the shares are TCP and not excluded property, section 116 also applies to the disposition.

Paragraph 70 of IC72-17R6 indicates that, where section 212.1 results in a deemed dividend in the context of a disposition, and the related Part XIII withholding tax has been withheld and remitted, the amount required to be remitted for purposes of subsections 116(2) and 116(4) are reduced by the amount of the deemed dividend. This eliminates any additional remittance in respect of that amount as part of the compliance certificate request process. While IC72-17R6 refers only to dividends deemed under section 212.1, the CRA extends that approach to requests for compliance certificates under subsections 116(2) and 116(4) in respect of the redemption or repurchase of TCP shares where subsection 84(3) deems a dividend to have been paid.

In the hypothetical situation considered, provided no exception in subsection 116(5) applies, the corporation, as purchaser, is liable to remit, on behalf of the non-resident vendor, 25% of the amount by which its cost of redeeming the shares exceeds the subsection 116(2) certificate limit, if any. It is required to remit that amount within 30 days after the end of the month in which the shares are redeemed. The corporation is entitled to deduct or withhold that amount from the amounts paid or credited to the non-resident. Accordingly, absent a certificate issued under subsection 116(2) or 116(4), the subsection 116(5) liability will generally be computed by reference to the full redemption price.

Therefore, as pointed out by the question, concurrent remittance obligations may arise on the deemed dividend under subsection 215(1) and under subsection 116(5) where a certificate of compliance requested under subsection 116(2) or 116(4) is not issued before the purchaser’s remittance deadline under subsection 116(5).

The CRA may, upon request, confirm in writing that it will not apply penalties and interest that would otherwise arise from a failure to remit under subsection 116(5), provided the purchaser holds the amount required under that provision in a fiduciary capacity until the CRA completes its review and advises the amount required to be remitted. Where a subsection 116(2) certificate is issued, the purchaser’s obligation is reduced to the extent of the certificate limit, whereas a subsection 116(4) certificate eliminates it.

The CRA acknowledges the burden created by delays related to the issuance of section 116 certificates. The CRA is actively working on it internally to improve processing time on issuing section 116 certificates. Early submission of a notice under subsection?116(1), where feasible, can help to mitigate processing delays in the issuance of certificates of compliance and reduce purchaser?side remittance risks.

Regarding the question on paragraph 248(28)(a), that provision applies to prevent the same amount from being included or deducted more than once in computing a taxpayer’s income, taxable income, taxable income earned in Canada, or income or loss from a particular source or place for a taxation year. In the hypothetical situation considered, paragraph 248(28)(a) does not resolve the concurrent application of Part XIII tax on the deemed dividend and purchaser liability under subsection 116(5), because there is no double inclusion of the same amount in income, but rather a concurrent operation of a withholding and a remittance mechanism under Parts I and XIII of the Act. Any remittance under subsection 116(5) should ultimately be recoverable by the non-resident vendor.

The Department of Finance is aware of the interaction between the relevant statutory provisions and the potential for concurrent remittance obligations that may arise in certain fact patterns. The CRA is engaged in ongoing discussions with Department of Finance on this issue.

Vicky Liu
2026-108793
May 13, 2026

Response prepared in collaboration with:

Non-Resident Compliance Division
Compliance Programs Branch

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1. All statutory references in this document are to the Income Tax Act, R.S.C. 1985, (5th Suppl.) c.1, as amended (the “Act”), unless stated otherwise.