CRA Clearance Certificates for Alberta Estates Explained

If you are an executor in Alberta, you may have heard that you should get a clearance certificate from the CRA before handing out the estate. That advice matters, because the tax rules can follow an executor personally if something is missed.

This article explains what the certificate is, when to ask for it, what you will need and how long it can take. These rules are federal and apply across Canada.

This article covers the law of Alberta.

What a clearance certificate is

A clearance certificate confirms that an estate, trust or corporation has paid the income tax, GST/HST, interest and penalties owed when the certificate was issued, or that the Minister has accepted security for them. In plain terms, it is the CRA's confirmation that the estate's tax bills are settled up to that point.

Where the estate's tax comes from

A clearance certificate is tied to the tax owed by the deceased and the estate, so it helps to know where that tax comes from. A final T1 return must be filed for every person who dies. It reports the deceased's property, investments and other taxable income, and the legal representative may claim deductions and credits to reduce what is owed.

• Deemed disposition: the person is considered to have sold all their property just before death, even though no sale occurs, which may create a capital gain or loss. It is reported on Schedule 3 and line 12700 of the final return.
• Spousal rollover exception: property passing to a Canadian-resident spouse, common-law partner or qualifying spousal trust is deemed disposed of at adjusted cost base instead of fair market value. The spouse or partner must be a resident of Canada at death, and the property must be locked in for them no later than 36 months after the date of death. The legal representative can also elect in the deceased's return, property by property, not to use the rollover, in which case the deemed disposition at fair market value applies instead.
• RRSP and RRIF: the full fair market value of the plan is included in income in the year of death. There is an exception where a spouse or common-law partner is the sole designated beneficiary of an RRSP and all the property is transferred to a qualifying plan by December 31 of the year after death.

The capital gains tax from the deemed disposition falls on the deceased's final return, so it is paid out of the estate and not by the heir. How these rules apply to a particular estate depends on the facts, so it is worth confirming with a lawyer or accountant.

Why it matters before you distribute

Before distributing property under their control, the legal representative must obtain a clearance certificate. If they distribute without one, they are personally liable for the amounts owing, up to the value of the property distributed.

There are limits. A certificate covers only property known when it was requested, so if new assets are found later, another certificate is needed before distributing them. It is also generally not available if the estate cannot pay all the amounts owed.

When and how to request it

Request the certificate only after the returns are filed and assessed and the taxes are paid or secured. Do not submit the request with the returns, because that delays assessment. The request is made on Form TX19, Asking for a Clearance Certificate, plus Form GST352 if the deceased had a GST/HST number.

Documents you will be asked for include the following:

• The will and probate documents, or the administrator appointment.
• A list of assets with adjusted cost base and fair market value.
• Statements of distributions made and proposed.

The CRA sends an acknowledgement within 45 days, and assessment can take up to 120 days if all documents are provided. If you have no response within 120 days, contact the CRA.

Returns that come first

Because the request comes after assessment, the returns need to be filed first. The final T1 return is due April 30 of the following year for deaths from January 1 to October 31, or six months after death for deaths from November 1 to December 31. If a due date falls on a weekend or CRA-recognized public holiday, a return is on time if received or postmarked by the next business day.

There are exceptions. If the deceased or their cohabiting spouse or common-law partner carried on a business, the filing date is June 15 of the year following the death for deaths from January 1 to December 15, but payment is still due on the standard payment due date. If the person died on or before the due date of their previous-year return and it was not filed, that return is due six months after the date of death.

The estate may also need a T3 return, due 90 days after the trust's tax year-end, and sales by the estate after death are reported on a T3. A late final return with a balance owing can attract a penalty of 5% of the balance owing, plus 1% for each full month late, to a maximum of 12 months, and unpaid tax bears compound daily interest. A late T3 may attract a penalty of $25 a day, with a minimum of $100 and a maximum of $2,500, even if nothing is owing.

What to do next

• Confirm you hold the court documents that show your authority to act.
• Identify all returns needed: final T1, optional returns and any T3.
• File the returns and pay or secure the tax.
• Wait for the assessments before sending Form TX19.
• Prepare the asset list and the distribution statements.
• Hold back distributions until the certificate arrives, and ask a lawyer if you are unsure.

Frequently asked questions