My gain is exempt under the treaty. Do I still have to notify the CRA?
Yes. Treaty protection removes the tax, not the process. Form T2062C is the notification of a disposition of certain treaty-protected property, filed instead of a full clearance application, and its whole purpose is to document the exemption you are relying on. Skipping it does not leave a clean position, it leaves an undocumented one, and the purchaser is then exposed to exactly the withholding the treaty was supposed to make unnecessary. That is usually how the problem surfaces: not as a letter from the CRA, but as a buyer's solicitor holding funds because nothing on the file evidences the treaty position. File the notification and the exempted position is on the record.
What is the difference between the notification and a clearance certificate application?
They answer different questions. A clearance application asks the CRA to approve a computation and issue a certificate, and it exists because there is tax at stake on the disposition. The notification route is for certain treaty-protected property, where the gain is exempted or protected by a treaty, and the filing exists to record that rather than to settle an amount. So the work is different in kind. On a clearance application, most of the effort goes into cost base and computation. On the notification, most of it goes into establishing that the property and the seller are within the treaty provision relied on, and documenting it well enough that the purchaser's side can act.
The buyer still wants to withhold even though the treaty exempts my gain. What now?
The buyer's position is not unreasonable. On a disposition of taxable Canadian property by a non-resident the purchaser carries the withholding exposure, so an undocumented treaty exemption is the buyer's risk rather than the seller's assurance. Two things move it. File the notification, which is what puts the exempted position on the record, and give the solicitor the filing evidence rather than an explanation of the treaty. Then agree in writing what happens to the holdback and when. Sellers who leave this until after the agreement is signed usually pay for it in closing delay rather than in tax, because the funds sit in trust while the paperwork catches up.
Who counts as treaty-protected for the section 116 notification?
It turns on the treaty and on the property, and both halves have to be satisfied before the notification is the right route rather than a full clearance application. The seller has to be a resident of the other state for the purposes of the relevant treaty, which is a question of that treaty's own residence rules rather than of where the post arrives. The property has to fall within the provision relied on, and the treaty articles dealing with gains carve out classes of property that remain taxable in Canada. Establish both before choosing. Taking the notification route and being wrong is worse than filing the clearance application you did not strictly need.
Does filing the notification mean the CRA has accepted my treaty position?
No, and treating it as an approval is how sellers get caught out later. The notification records the disposition and the exemption relied on. It is not a ruling that the exemption applies, and the position can be examined afterwards. That has two consequences worth planning for. Keep the supporting file, including the residence evidence, the property's character and the treaty article relied on, rather than discarding it once the closing has gone through, because the question can be asked years later and the documents are hardest to obtain then. And say plainly in the filing what the position rests on. A notification that leaves the basis implied invites the query.
I sold treaty-protected property last year and filed nothing. Is it too late?
Late is better than never here, because the point of the notification is documentary and the document is still useful after the event. Expect the work to run in two directions. Backwards: establish the treaty residence and the property's character as they stood at the disposition, using evidence from that time rather than current paperwork. And sideways: find out what the purchaser actually did, because a buyer facing an undocumented exemption often withholds, and a withheld amount sitting against your disposition has to be reconciled rather than ignored. Filing on your own initiative, with the treaty position documented, puts you in a better place than waiting to be asked.
Can I set up a trust that works in two countries?
You can, but the two systems classify and tax trusts differently enough that a structure which is efficient in one is often a reporting problem in the other — a Canadian family trust with a US beneficiary, or a US revocable trust holding Canadian property, are the classic pairs. Canada's twenty-one-year deemed disposition, the US grantor rules and each country's reporting have to be read together, before drafting rather than after. See cross-border wills and trusts.
How do families with assets in two countries handle inheritance?
With paperwork built for both systems rather than one. In practice that means wills that work where each asset actually sits, an executor with authority a foreign bank or land registry will accept, clearance certificates before the estate distributes so the executor is not left personally exposed, and an estate tax exposure calculation done while the person is alive and can still act on it. Doing it afterwards costs more and forecloses most of the options. See cross-border wills and trusts.
