Technical article

Canada: 25% Held Back on Payments to Heirs Abroad

Canada taxes certain payments to people outside the country at a flat 25% unless a treaty lowers it.

By Neil Solomon · 3 min read

Imagine a Canadian trust that pays CAD 100,000 of income this year to a daughter who lives outside Canada. She expects the full amount. The trustee sends her less, and tells her the rest has gone to the Canadian tax office.

The amount held back depends on one number, and the number depends on where she lives.

The default is 25%

Canada taxes certain payments to people outside the country at a flat 25% unless a treaty lowers it. Income from an estate or a trust is on the list of these payments. The 25% is held back at the source by the person making the payment, which here is the trustee. It is not a bill the daughter pays later.

Canada's tax office gives the rule for these payments in general and does not set out a separate rate for a trust beneficiary. A tier B source on estates says that distributions to non-resident beneficiaries are generally subject to withholding, 25% without a treaty and 15% under the Canada-US treaty for certain income.

The amounts are examples. The treaty rate for each heir country is a separate lookup.

How a treaty lowers it

A treaty rate is not automatic. The heir has to qualify as the beneficial owner of the payment, and the claim goes through the forms NR301 to NR303.

What the trustee files

A trust that pays a non-resident files a return for it, called the NR4. The slips and the summary are due within 90 days of the trust's year-end, and slips go to the people paid by the same date.

A trustee who fails to hold back owes the tax plus a 10% penalty, or 20% if the failure is repeated and knowing. Late payment of what was held back adds 3% to 10%.

A related rule applies to rent. Rental income, or timber royalties, paid to a non-resident trust bears 25% on the gross amount. A section 216 election lets the trust file a return and be taxed on the net.

The heir's own country

The 25% is only the Canadian side.

You might say: "The trust already paid tax at the top rate. Why is there another 25% when it pays me?" That is how it can look, and a trust that keeps income can pay at the top rate. A trust that pays income out deducts it, so the tax moves to the beneficiary, and for a beneficiary outside Canada that tax is the 25%.

You could ask three things before the first payment. Which country is the heir resident in, and does it have a treaty with Canada? Which part of the payment is income and which is capital? Who in the family will complete the forms?

The people this touches are the trustees, who carry the penalty if they miss the holding back; the heirs abroad, who receive less than the trust paid; and the family member who keeps the records.

If you have received a payment from a Canadian trust while living abroad, how did the held-back amount compare with what you expected? Share it here, because it may help another reader.

Figures are estimates for planning, based on public data. Date read: October 2026.