Does a Canadian trust have to withhold tax when it pays income to a beneficiary living abroad?

Generally, yes. When a Canadian resident trust pays or credits income to a beneficiary who lives outside Canada, the trust typically has to withhold non-resident withholding tax from that payment and remit it to the CRA, rather than paying the full amount to the beneficiary and letting them sort out their own Canadian tax obligation afterward. This is separate from, and in addition to, whatever tax the trust itself might owe on income it keeps rather than distributes.

The rate that applies isn't fixed at one flat number for every situation — Canada's tax treaties with many countries reduce the standard withholding rate that would otherwise apply, so the correct rate depends on the specific country the beneficiary lives in and the type of income being paid. Getting this wrong exposes the trust and its trustees to liability for tax that should have been withheld but wasn't, on top of the beneficiary's own reporting obligations in their country of residence.

Because the trustee bears responsibility for withholding correctly, and treaty rates vary by country and income type, a trust with a non-resident beneficiary should confirm the applicable rate and withholding mechanics with a tax advisor before making any distribution, rather than assuming domestic rules apply.