Distributing an Estate Without a CRA Clearance Certificate in Canada

Many executors want to close an estate quickly. Beneficiaries are waiting, the house may be sold, and the bank accounts are ready to be paid out. The difficulty is that CRA may later decide the deceased or the estate owed more tax than anyone expected.

This article explains what the Income Tax Act says can happen to you personally if you distribute before getting a clearance certificate. It is general information, not advice on your particular estate, so a lawyer or accountant should confirm how it applies to you.

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

What the clearance certificate rule requires

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

Before distributing property in their possession or control, a legal representative must obtain that certificate, applying in the prescribed form. The rule does not carve out small estates, so you should not assume a modest estate lets you skip it.

What personal liability means for an executor

If a legal representative distributes property without the certificate, they are personally liable for the unpaid amounts, limited to the value of the property distributed. In practice, CRA can look to you, not just the estate, for the tax.

There are several features worth knowing:

• The Minister may assess the representative for that amount at any time.
• The liability applies whether the assessment is made before or after the property is actually distributed, and interest accrues.
• The cap is the value of the property distributed, so it is tied to what left your hands.
• More generally, a legal representative is jointly and severally liable with the taxpayer for unpaid amounts, to the extent of their control of the taxpayer's property.

What counts as a distribution

Distribution happens when the representative gives up control and transfers the property, not when the beneficiary becomes entitled to it. Appropriating property, such as taking an asset for yourself as a beneficiary, is treated the same way.

Some payments are different. Trust income paid or allocated to beneficiaries is not a distribution of property, so no certificate is needed for it. A representative also does not need a certificate before each distribution if enough property remains to cover any liability. CRA gives no formula for how much to hold back, so that is a judgement worth discussing with a professional.

If you have already distributed, or are tempted to

If you have not yet paid anything out, the safest course is generally to wait until the certificate arrives or to plan a limited distribution with enough property kept back. Beneficiaries sometimes press for early payment, and it can help to explain that the executor carries the personal risk.

If you have already distributed, the exposure is the unpaid tax up to the value distributed, and CRA can assess it without a time limit. What is owed depends on the returns that were filed and the tax that was paid, which varies from estate to estate. A lawyer or accountant can help you work out the likely amount and your options, including how to approach beneficiaries.

A certificate also covers only property controlled up to the date of the request. If new assets turn up later, you must get another certificate before distributing them.

What to do next

• Pause further distributions of estate property until you know the tax position.
• List what has already been paid out, to whom and when.
• Confirm that the final return and any estate T3 returns are filed, and that tax is paid.
• Check whether the deceased had a GST/HST number, since a separate certificate is needed in that case.
• Speak with a lawyer or accountant before deciding on a holdback or a partial distribution.
• Apply for the certificate on Form TX19 once the required returns are assessed.

Frequently asked questions