We had a term life policy that had a conversion feature on maturity. We opted to take a cash payout. While a deemed resident for tax purposes, the insurer considered us non-resident and withheld taxes; they filed a T2062B with the CRA. We received no other forms from the insurer. I'm not sure how to report the gain or tax paid on our filing.
I have not been able to find anything that says you need to report this on your income tax return. It appears the tax payable resulting from the disposition should have been settled when the insurance company filed the T2062B form.
From the CRA information: "If you have disposed of a life insurance policy, Form T2062B and any required payment will be sent to us by the life insurance company". The form itself says "A final settlement of the tax liability is made when the non-resident files a Canadian income tax return".
On one hand you say that you need not report this income on your tax return and then you follow that up with "A final settlement of the tax liability is made when the non-resident files a Canadian income tax return". So this information needs to be entered somewhere. I also have disposed of a life insurance policy and have spoken to CRA who told me I need to file a tax return even though I received a t2062b and the tax was withheld. I was told I needed to file under Section 217, So I signed up for Turbotax and filled out my information and went to section 217 which deals with filing as a non resident but could not find any place to list income earned from life insurance surrender or disposition. My wife also had disposed of her life insurance policy and for some reason they forgot to withhold any money and she did not receive a t2062b and I have no idea where to enter that on Turbotax.
Please read through this information from CRA: If they advised you to enter it in section 217.
Please contact CRA asking them where exactly they'd like for you to enter this amount since it isn't specific.
Since I had first posted the question I have been in contact with CRA and had gotten an answer to my question which basically aligns with your answer. The life insurance policy that I disposed of is treated as a capital gain and the life insurance company is required to withhold taxes on the amount of disposition. The amount they withhold fulfills my obligation so I do not need to file a tax return. If i feel that the amount they withheld is too much and feel I am entitled to a refund, then I can file a return under section 217. Since the amount of disposition wasn't that large and the amount of tax I payed is pretty minor, I decided that it wasn't worth my time or effort to file a tax return.