Does a Clearance Certificate Protect You From Later CRA Reassessments in Canada?

You finally have the certificate in hand, and you want to know if you can relax. Can CRA still reassess the deceased or the estate, and can it come after you personally?

The guidance gives a clear answer on where liability goes, and it also leaves some questions open. This article sets out both, so you know what the certificate does and what you should still watch.

This article covers Canadian federal tax law, which applies in every province.

What the certificate confirms

A clearance certificate confirms that an estate, trust or corporation has paid all income tax, GST/HST, interest and penalties owed at the time it was issued, or that the Minister has accepted security for payment.

The words "at the time it was issued" matter. The certificate speaks to the position as CRA saw it then.

CRA does not issue the certificate for an estate unless the required returns are filed and assessed and all amounts are paid or secured. The certificate is also generally not issued if the estate cannot cover all tax, interest and penalties owing.

Security can be accepted instead of payment, so tax that is not yet paid can be secured. If you are thinking of offering security, contact CRA first to ask what it would accept.

Where liability goes afterward

Once a certificate is issued, liability for any remaining tax rests on the estate, trust, corporation, beneficiaries or others who received the assets, rather than on the representative.

That is the protection for you as executor. It moves the exposure away from your own pocket. It does not say that a reassessment is impossible. Do not assume CRA can never reassess after a certificate, and a lawyer or accountant can tell you how that applies to your situation.

Compare that with the position without a certificate. A representative who distributes property without one is personally liable for the unpaid amounts, limited to the value of the property distributed, and interest accrues.

Limits you should know about

• New assets: if new assets or property are discovered later, the representative must obtain another certificate before distributing them, by contacting the tax services office where the original request was filed.
• Timing: a certificate covers only property controlled up to the request date.
• Scope: it covers income taxes, interest, penalties, CPP contributions and EI premiums. Payroll source deductions and other program accounts are not separately confirmed, so check with CRA if the deceased had a business.
• GST/HST: Form GST352 is used for GST/HST, and it is needed alongside Form TX19 if there is a GST/HST number.

Distribution occurs when the representative gives up control and transfers the property, not when the beneficiary gains the right to it, and appropriating property also counts as a distribution. A representative need not obtain a certificate before each distribution if enough property remains to cover any liability, which is the basis for a partial distribution with a holdback.

What it means for beneficiaries

Because liability for remaining tax can rest on those who received the assets, beneficiaries are not entirely out of the picture. It is reasonable to tell them so, and to keep your records of the estate's returns, assessments, the certificate and the distributions.

Trust income paid or allocated to beneficiaries is not a distribution of property, so no certificate is needed for it.

What to do next

• Keep the certificate and the notices of assessment with the estate records.
• Distribute only property covered by the request, and obtain another certificate for anything found later.
• If the certificate has not arrived, was denied, or no officer has contacted you within 120 days, phone 1-800-959-8281 for an individual T1 or trust T3 account.
• If it was denied, read what the denial says is missing and reapply once resolved.
• Ask a lawyer or accountant about any CRA letter received after the certificate.

Frequently asked questions