Can an estate post security with the CRA instead of waiting for a clearance certificate in Canada?
This answer covers Canadian federal tax law, which applies in every province.
Possibly, but security is not a shortcut around the process. A clearance certificate can be issued where the Minister has accepted security for payment, so tax that is not yet paid can be secured instead of paid. CRA has to accept the security first, and what it will accept depends on the facts, so contact CRA before you promise anything to beneficiaries.
The returns still come first. CRA does not issue the certificate unless the required returns are filed and assessed and all amounts are paid or secured. It is also generally not issued if the estate cannot cover all the tax, interest and penalties owing. If you distribute without a certificate, you are personally liable for the unpaid amounts, up to the value of the property distributed.
Two related options may ease the pressure. You can elect to pay certain deferred tax, such as on deemed dispositions at death, in up to 10 equal annual instalments if acceptable security is given, with interest while payment is deferred. A partial distribution may also be possible without a certificate if enough property remains to cover any liability. Ask a lawyer or accountant which fits your estate.
Key takeaways
- A clearance certificate can be issued where the Minister has accepted security for payment, so unpaid tax can be secured instead of paid.
- The required returns must still be filed and assessed before CRA issues the certificate, even where security is offered.
- An executor who distributes without a certificate is personally liable for unpaid amounts, up to the value of the property distributed.
- Paying certain deferred tax in up to 10 equal annual instalments, or making a partial distribution while enough property remains, are related options to raise with your advisor.