Clearance Certificates in BC: Do You Need One Before Distributing?

If you are the executor of an estate in British Columbia, there is a point where beneficiaries start asking when they will be paid. Before you hand out assets, there is a tax question to settle: has the estate paid everything it owes to the Canada Revenue Agency (CRA)?

A clearance certificate is the CRA's way of answering that question. This article explains what it is, how the request works, and why many executors treat it as an important step. A lawyer or accountant can confirm how it applies to your estate.

This article covers the law of British Columbia.

What a clearance certificate is

A clearance certificate confirms that the estate has paid the income tax and GST/HST, plus interest and penalties, that it owed. It can also confirm that the Minister has accepted security for those amounts.

Once you hold one, you can distribute the assets without being personally responsible for those amounts. It is requested on Form TX19.

Why the risk falls on you

The legal representative of a deceased person is typically the executor named in the will. If there is no will or executor, a person can be appointed through the courts, or can register with the CRA using Form RC552, although that approval is for CRA purposes only.

The CRA says the legal representative should apply for a clearance certificate before distributing estate assets. If you distribute without one and tax turns out to be owing, you can be held personally liable for the outstanding balances, up to the value of the assets you distributed.

In practice, that means money paid out to beneficiaries could become your problem if the CRA later says tax is unpaid. This is why the timing of distributions matters.

Returns that come before the certificate

The legal representative must file the final return for the year of death, file any returns the deceased had not filed for earlier years, and file T3 returns if required. The final return reports the deceased's income from January 1 of the year of death up to the date of death, while income the estate earns after death may have to be reported on a T3 Trust Income Tax and Information Return.

Even where the business filing date of June 15 applies, any balance owing is still due on the regular payment date, and interest accrues from the day after that date. The later business filing date is not available where the business's expenditures were mainly the cost of tax shelter investments.

A late final return can bring a penalty of 5% of the balance owing plus 1% for each full month it is late, to a maximum of 12 months. The penalty may be higher if a late-filing penalty was assessed in any of the 3 previous tax years, and the CRA may cancel penalties or interest where lateness was beyond a person's control.

A T3 return is due no later than 90 days after the trust's tax year-end. An estate may not need to file one if it is distributed immediately after death or earned no income before distribution. Whether a T3 is required for your estate depends on the facts, so it is worth confirming with a lawyer or accountant.

How the request works

You should wait until the required returns have been filed and assessed before asking. The supporting documents include:

• The signed will, or the document appointing the administrator.
• A list of the assets at the date of death.
• A statement of the distributions made and proposed.
• Details of any beneficiaries receiving non-cash property.

The CRA sends an acknowledgement within 45 days, and the assessment can take up to 120 days. Plan your timeline around the longer figure rather than a shorter estimate you may have heard elsewhere.

GST/HST accounts and trusts

If the deceased or their business had a GST/HST account, Form GST352 must be completed together with Form TX19. A separate certificate is also needed for any trust.

What to do next

• Confirm who the legal representative is and gather the will or appointment papers.
• File the final return and any other required returns, such as a T3 if needed.
• Wait for the assessments before requesting the certificate.
• Prepare the asset list and the statement of distributions.
• Consider holding back distributions until the certificate arrives, and ask a lawyer or accountant about partial distributions.

Frequently asked questions