CRA Clearance Certificate for Ontario Executors Explained

Many executors want to pay out the estate as soon as the debts look settled. Before you do, there is one step that protects you personally: the CRA clearance certificate.

This article explains what the certificate is, when to ask for it and what can happen if you skip it. It is general information, and a lawyer or accountant can confirm what applies to your estate.

What a clearance certificate does

A clearance certificate confirms that the estate has paid all amounts of income tax. In plain terms, it is the document that addresses your personal risk as executor, because distributing without one when tax is owing leaves you personally liable.

It matters because of your duties as legal representative. You must file all required returns for the deceased, make sure any balance owing is paid before distributing, and confirm that all balances owing to the CRA are resolved.

Ontario's official guidance says the estate is distributed once assets have been liquidated and the funeral and burial expenses and any debts have been paid. Tax owing to the CRA is one of those debts, which is why the certificate belongs near the end of the process.

The risk of skipping it

If you distribute assets without a certificate and tax is owing, you are personally liable for the unpaid amounts, up to the value of the assets you distributed.

That means money already paid to beneficiaries could become your problem. Beneficiaries may have spent it or moved away, and you may be left covering the gap. For that reason, many executors hold back part of the estate until the certificate arrives.

When to request it

Timing is the part executors most often get wrong. You request a certificate on Form TX19 only after the required returns are filed and assessed and taxes are paid or secured. Do not send the request at the same time as the returns.

The returns you wait on may include the final T1 and the estate's T3. Their due dates are summarized below.

An estate can be a graduated rate estate for no more than 36 months after the death. A graduated rate estate may have a non-calendar tax year, while other trusts generally must use a December 31 year-end. A T3 return is required if the trust has total income of more than $500 from all sources, or if it makes a capital distribution to beneficiaries even at $500 or less.

How long it takes and special cases

The CRA acknowledges the request within 45 days, and the assessment can take up to 120 days. Plan for this when you tell beneficiaries when to expect their share.

• If the deceased had a GST/HST number, a separate Form GST352 is also needed.
• For corporations being wound up or dissolved, a clearance certificate is also required before distributing corporate property.

If the estate pays executor fees, there are extra slips to file. The estate must file a T4 Summary and the related T4 slips. For someone who does not act as an executor in the course of a business, the fees are income from an office or employment, reported in box 14 of a T4 slip with CPP and income tax deducted but no EI. A professional executor acting in the course of a business earns business income instead, reported on a T4A slip rather than a T4.

If the estate is complicated, for example it includes a business, a corporation or several years of unfiled returns, getting advice early can save months.

What to do next

• List every return that must be filed, including the final T1 and any T3 returns.
• File them and wait until they are assessed.
• Pay the tax owing, or arrange to secure it.
• Then send Form TX19, and Form GST352 if there was a GST/HST number.
• Hold back enough of the estate to cover possible tax until the certificate is issued.
• Before you distribute, review the certificate and check that any other debts have been dealt with.

If beneficiaries are pressing you to pay out sooner, explain the personal liability rule and suggest an interim distribution only after taking advice.

Frequently asked questions