CRA Clearance Certificates for Ontario Estate Trustees

If you are an estate trustee, you may have heard that you should get a clearance certificate from the Canada Revenue Agency (CRA) before you pay out the estate. The advice is common, but it is rarely explained in plain words. You may be wondering what the certificate actually is and whether you need one.

This article explains why timing matters before you distribute, and which Ontario estate tax steps run alongside any CRA step. The specific CRA process, forms and timelines are best confirmed with an accountant or lawyer who handles estates.

Where a clearance certificate fits

A CRA clearance certificate is a federal tax matter, and what it covers, how to apply and how long it takes all depend on the estate. Ask an accountant or lawyer to confirm the current CRA process before you rely on it.

The Ontario certificate of appointment is a different thing. Ontario guidance says that if the deceased owned real property or assets held by a financial institution, the estate normally has to be probated. Probate is not always required, though: assets held jointly or with a designated beneficiary, such as an insurance policy or joint bank account, pass according to how they are owned or designated.

Why trustees think about it before distributing

The deceased person's property vests in the personal representative, who holds it as trustee for the people entitled, subject to the payment of debts. The estate is distributed only after funeral and burial expenses and debts are paid. How any tax amount owing is treated alongside other debts is worth confirming with an accountant or lawyer.

If the money has already gone to beneficiaries when a tax question appears, you may be left explaining why. That is the practical reason many trustees wait for tax confirmation before the final distribution. Under the Trustee Act, if the assets are not enough to pay all debts, debts are paid proportionately, with no debt of one kind taking priority over another. How that works for a particular tax amount is worth confirming with a lawyer.

A personal representative who has given the required notices may distribute the estate and is not liable to a creditor whose claim they had no notice of at the time. Which notices are needed in your situation is worth confirming with a lawyer.

Ontario steps that run alongside it

Separately from any CRA step, these are the Ontario estate tax requirements to keep in view:

• Estate Administration Tax is paid as a deposit when the application is filed and becomes payable when the certificate is issued, and the estate pays it, not you personally.
• No tax is payable if the estate is worth $50,000 or less. Above that, it is $15 for each $1,000 or part of $1,000 over $50,000 for applications on or after January 1, 2020.
• If the deposit is based on an estimated value, you must undertake to file a sworn statement of the actual value and pay any extra tax within six months.
• An Estate Information Return must be filed with the Ministry of Finance within 180 calendar days after the certificate is issued, even if no tax is payable.
• If you learn the return is incomplete or inaccurate, an amended return must be filed within 60 days.

Failing to file the required information, or making false or misleading statements, is an offence, though it is not an offence if the person did not know and could not reasonably have known that a statement was false.

Getting the numbers right first

Clean records make any tax clearance smoother. Assets must be valued at fair market value at the date of death, and you should be able to support each value with documents such as statements or an appraiser's opinion. Unsecured debts such as credit cards and lines of credit cannot be deducted to reduce the estate's value for Estate Administration Tax, but a mortgage or lien on Ontario real estate can.

Real estate outside Ontario is not included in the estate's value for Estate Administration Tax, while other property worldwide, such as bank accounts, investments, vehicles and business interests, is included.

What to do next

• Hold back final distributions until you know what taxes and debts the estate owes.
• Gather the deceased's tax records, statements and valuations in one place.
• Diarize the 180-day Estate Information Return deadline from the date the certificate is issued.
• Ask an accountant or lawyer to confirm the current CRA clearance process and what it covers for this estate.
• Keep written records of every payment and decision you make as trustee.

Frequently asked questions