- A clearance certificate can issue where the Minister has accepted security for payment, so unpaid tax can be secured instead of paid.
- CRA does not set out the form or amount of acceptable security on its certificate page, so you should contact CRA first.
- A holdback may let you distribute part of the estate while the request is processed, if enough property remains to cover any liability.
CRA clearance certificates can take months. If you are an executor with beneficiaries waiting, you may wonder whether you can simply guarantee the taxes and move ahead with distributing the estate.
Security does have a place in the process, but it is not a shortcut around the certificate. This article explains what the rules say about security, what other options exist while you wait, and what to ask CRA.
This article covers Canadian federal tax law, which applies in every province.
Where security fits in
A clearance certificate confirms that an estate has paid all income tax, GST/HST, interest and penalties owed at the time it was issued, or that the Minister has accepted security for payment. So security can support a certificate, but it does not replace the need for one.
The legal requirement stays the same: before distributing property in their possession or control, a legal representative must obtain a certificate from the Minister. Distributing without it makes the representative personally liable for the unpaid amounts, up to the value of the property distributed.
What security can and cannot do
Because the certificate can issue where the Minister has accepted security for payment, tax that is not yet paid can be secured instead. However, CRA's certificate page does not set out the form or amount of acceptable security, so you need to contact CRA first.
Other conditions still apply. CRA does not issue the certificate for an estate unless the required returns are filed and assessed and all amounts are paid or secured. You still need the notices of assessment, any requested reassessments, and legal documents proving your status as representative.
Also, the certificate is generally not issued if the estate cannot cover all tax, interest and penalties owing. How security might apply in that situation depends on the facts of your estate, so it is worth confirming with CRA and a lawyer or accountant.
Deferring tax in instalments
For certain deferred tax, such as tax on deemed dispositions at death or on a trust's 21-year deemed disposition, a legal representative may elect to pay in up to 10 equal annual instalments, provided acceptable security is given. Interest at the prescribed rate applies while payment is deferred.
On a Return for Rights or Things, part of the tax may be deferred by filing Form T2075 and providing acceptable security. These options spread out payment, and they are worth considering together with the certificate request. The right choice depends on the estate's assets and liquidity.
Distributing while you wait: the holdback
If the delay is the main concern, the more common tool is a partial distribution. A representative need not obtain a certificate before each distribution if enough property remains to cover any liability. The certificate request must include a statement of distribution to date and the proposed distribution of any holdback or residual.
CRA gives no formula for the amount to hold back, so it is a judgement. A lawyer or accountant can help you estimate it.
| Option | What it involves |
|---|---|
| Security | Minister accepts security for payment, so the certificate can issue |
| Instalments | Up to 10 equal annual instalments for certain deferred tax, with acceptable security |
| Holdback | Partial distribution if enough property remains to cover any liability |
What to do next
CRA acknowledges the request within 45 days, and assessment can take up to 120 days if all documents are provided, although an audit may be needed first. If nothing has arrived, the certificate was denied, or no officer has contacted you within 120 days, you can phone 1-800-959-8281 for an individual T1 or trust T3, or 1-800-959-5525 for a corporation T2 or GST/HST. If it is denied, the notice states what is missing and you can reapply once the issues are resolved.
- Confirm all returns are filed and assessed
- Total the tax, interest and penalties owing
- Contact CRA before offering any security, to ask what it will accept
- Consider whether instalments or a holdback fit the estate
- Submit Form TX19 with the required attachments
- Keep a record of every distribution and every CRA contact
Because the choice affects your personal liability, get advice from a lawyer or accountant before you distribute.
Frequently asked questions
Can I distribute right away if I offer security?
Offering security is not the same as having the certificate. The certificate can issue where the Minister has accepted security for payment, and distributing without it exposes you to personal liability.
What kind of security does CRA accept?
CRA's certificate page does not set out the form or amount of acceptable security, so contact CRA first.
Can I pay the tax over time?
For certain deferred tax, such as tax from deemed dispositions at death, you may elect up to 10 equal annual instalments if acceptable security is given. Interest at the prescribed rate applies while payment is deferred.
What if I just hold back part of the estate?
You need not obtain a certificate before each distribution if enough property remains to cover any liability. You will still need the certificate before the final distribution.
Sources
- CRA – Apply for a clearance certificate — canada.ca
- Income Tax Act s. 159 — Justice Laws (federal)
- CRA – IC82-6R13 Clearance Certificate — canada.ca
- CRA – Filing and payment due dates — canada.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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