How Does CRA Collect Tax Debts From an Estate Before Distribution in Canada?

If the estate is tight or may not cover all its debts, the first fear is usually where CRA stands among the creditors and what that means for you personally. Executors often worry about paying the wrong person first.

The federal rules in the Income Tax Act put real weight on the executor's own conduct. How CRA ranks against other creditors depends on the facts and on provincial and territorial estate law, so that part is worth confirming with a lawyer before you pay anyone.

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

Why CRA looks to the executor

A legal representative is jointly and severally (solidarily) liable with the taxpayer for the taxpayer's unpaid amounts under the Act, to the extent of the representative's control of the taxpayer's property. CRA may also take actions in the representative's name.

A legal representative is a person who administers, winds up, controls or otherwise deals with a property, business or estate, and whether someone qualifies depends on the facts.

The clearance certificate is the main control

Before distributing property in your possession or control, you must obtain a certificate from the Minister, applied for in the prescribed form, that the relevant amounts have been paid or secured. The certificate covers income taxes, interest, penalties, CPP contributions and EI premiums. If the deceased had a GST/HST number, the Excise Tax Act also requires a GST/HST certificate before distributing property or money.

Payroll source deductions and other program accounts are not clearly covered, so check with CRA if the deceased had a business.

The Minister may assess the representative for that amount at any time.

Where CRA ranks among other creditors

The rules we can describe do not set out a ranking list. What they show is that you are personally exposed if you pay beneficiaries, or yourself, before tax is dealt with. Priority among creditors, including any claims on an insolvent estate, depends on the facts, so get legal advice before paying debts out of a limited estate.

If the estate is tight

• CRA generally does not issue the certificate if the estate cannot cover all tax, interest and penalties owing.
• The certificate can issue where the Minister has accepted security for payment, so tax not yet paid can be secured. The form and amount of acceptable security are not set out, so contact CRA first.
• For certain deferred tax, such as on deemed dispositions at death, a representative may elect to pay in up to 10 equal annual instalments if acceptable security is given, with interest at the prescribed rate while payment is deferred.
• You need not obtain a certificate before each distribution if enough property remains to cover any liability.

Distribution happens when you give up control and transfer the property, and appropriating property also counts. Hold assets until you know the tax position.

What to do next

• Stop distributions until you know what the estate owes.
• File all required returns and wait for the notices of assessment.
• Pay or arrange security for the amounts assessed.
• Apply for the certificate using Form TX19, and Form GST352 if there is a GST/HST number.
• Speak to a lawyer about the order of paying creditors if the estate may be insolvent.

Frequently asked questions