Who Is Personally Liable for a Deceased Person's Taxes in Ontario?

If you have been named as estate trustee, you may worry that the deceased's tax debts could become yours. In general, the debts belong to the estate, but the way you handle the estate's property can create personal responsibility.

This article explains when that liability arises, how distributing too early causes it, and the steps that limit your risk.

Where the estate's tax debt comes from

The legal representative is usually the executor named in the will, and balances owing to CRA are paid out of the estate's assets. A final T1 return must be filed for every person who dies.

Tax on the final return can be significant, because the deceased is treated as having sold their capital property just before death, and an unmatured RRSP is generally included in income on the final return. As trustee you also have a duty to wind up the affairs and pay taxes, bills and other debts before distributing what is left.

When you become personally liable

Every legal representative other than a trustee in bankruptcy must obtain a certificate from the Minister before distributing property under their control. The certificate confirms that all tax amounts have been paid or that security has been accepted.

A representative who distributes property without a clearance certificate is personally liable for the unpaid amounts, up to the value of the property distributed. The Minister can assess the representative at any time.

In practice, the risk is created by the act of distributing.

Ontario's Estate Administration Tax is a separate matter. The estate pays it, not the estate representative.

How a clearance certificate limits the risk

You apply on Form TX19, Asking for a Clearance Certificate, after all returns have been filed and assessed and the taxes, CPP, EI, interest and penalties have been paid or secured. Estates registered for GST/HST also file Form GST352. Do not send the request at the same time as the returns.

• A signed copy of the will, or the administrator's appointment if there is no will.
• Proof of your status as legal representative.
• A list of assets with their date-of-death values.
• A statement of distributions already made, and a proposed plan for the rest.
• The names and tax numbers of beneficiaries receiving non-cash property.

CRA acknowledges the request within 45 days, and the assessment can take up to 120 days if the documents are complete. Plan for that wait before promising beneficiaries a date.

Once the certificate is issued, liability for unpaid tax rests on the estate, trust, corporation, beneficiaries or others who received the distributed assets, and no longer on you.

Limits, exceptions and related risks

• The certificate covers only amounts owing when it is issued. If more assets are found later, another certificate is needed before distributing them.
• A clearance certificate generally cannot be obtained if the estate does not have enough assets to pay all the tax, interest and penalties owed to CRA. A lawyer should advise you before you distribute anything from an estate that may be short of funds.
• If tax arises from deemed dispositions at death, the representative can elect and provide acceptable security to pay it in up to 10 equal consecutive annual instalments.
• A person who receives RRIF amounts because of the annuitant's death is jointly and severally liable with the deceased for part of the deceased's tax for the year of death, so CRA can collect that tax from the recipient.

Priority among debts in an insolvent estate is a legal question that depends on the facts, so get legal advice rather than deciding which creditors to pay on your own.

What to do next

• Hold off on distributing property until the tax position is clear.
• Send CRA the death certificate or funeral director's statement of death and a complete copy of the will.
• Use Form RC552 to register if there is no will or executor.
• File a T3 return for the estate if it realizes a gain or receives payments after the death.
• Check whether any amounts, such as the CPP/QPP death benefit, are reported by a beneficiary instead.
• Pay or secure the taxes, CPP, EI, interest and penalties owing.
• File Form TX19 only after all returns are filed and assessed.
• If the estate may not cover its tax debts, confirm your options with a lawyer before paying anyone.

Frequently asked questions