What Is a CRA Clearance Certificate and Do I Need One in BC?

As an executor, you may be ready to pay out the estate to beneficiaries and wonder whether anything from the CRA is needed first.

A clearance certificate is the CRA's way of confirming that the estate's tax has been dealt with. This article explains what it is, how it is requested, and the risk of skipping it.

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, interest and penalties it owed, or that the Minister has accepted security for them. It lets the legal representative distribute assets without personal responsibility for those amounts.

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. That registration is approved for CRA purposes only, so it covers CRA matters and not other estate duties.

Do you need one?

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

That means the risk falls on you personally, not only on the estate. Whether you should wait for a certificate in a particular estate is worth discussing with a lawyer or accountant, especially if the estate is large or the tax picture is not simple.

The certificate comes at the end of a series of tax steps. 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.

How to request one

The request is made on Form TX19. You should wait until the required returns are filed and assessed.

Supporting documents include:

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

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

How long it takes

The CRA sends an acknowledgement within 45 days, and the assessment can take up to 120 days. Plan for this before you promise beneficiaries a distribution date.

Because the returns must be filed and assessed first, late filing can delay the whole process. A required T3 return is due no later than 90 days after the trust's tax year-end, and failing to file a required T3 may lead to a late-filing penalty.

The due date for the final return depends on when the person died:

• Death from January 1 to October 31: the return is due April 30 of the year following the death.
• Death from November 1 to December 31: the return is due 6 months after the date of death, and any balance owing is due on that date too.
• If the deceased, or a spouse or common-law partner living with them, was carrying on a business, the return for a death from January 1 to December 15 is due June 15 of the year following the death. For a death from December 16 to December 31, it is due 6 months after the date of death.

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

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

Estates and T3 returns

Income earned by the estate after death may have to be reported on a T3 Trust Income Tax and Information Return. An estate may not need to file a T3 if it is distributed immediately after death or earned no income before distribution.

A graduated rate estate is an estate that arises on death, exists no more than 36 months after the death, is a testamentary trust, provides the deceased's SIN on its T3 returns, and designates itself as the graduated rate estate on its T3 with no other estate doing so. It may use a non-calendar tax year-end, with a deemed year-end no later than 36 months after death. Whether this applies to a particular estate depends on the facts, so it is worth confirming with a lawyer or accountant.

What to do next

• Confirm the final return and any required T3 returns are filed and assessed.
• Prepare a list of assets at death and a statement of distributions made and proposed.
• Check whether a GST/HST account exists, which requires Form GST352.
• Submit Form TX19 with the supporting documents.
• Apply before distributing assets, and confirm timing with a lawyer.

Frequently asked questions