Executor Personal Liability for Distributing Without a CRA Certificate in Canada

Being named executor often feels like an honour, until you learn that the Canada Revenue Agency (CRA) can look to you personally if the deceased person's taxes are not fully paid. The risk is greatest at the moment you start handing out the estate to beneficiaries.

This article explains who counts as a legal representative, when personal liability arises under the federal Income Tax Act, what counts as a distribution, and how a clearance certificate and a careful holdback reduce your exposure. It does not walk through the application itself, and it covers federal rules only.

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

Who counts as a legal representative

CRA describes a legal representative as a person who administers, winds up, controls or otherwise deals with a property, business or estate, and whether someone qualifies depends on the facts. That can be wider than the person named in the will.

• Usually it is the executor named in the will; in Quebec, it is the person registered as liquidator.
• If there is no will or executor, a person who applies to the courts may be appointed administrator under provincial or territorial law.
• While waiting for a court appointment, or if none is made, a person can ask CRA to recognize them for tax matters by submitting Form RC552, but that covers CRA matters only, not other estate duties.

Anyone who administers, manages or otherwise deals with the property, business, estate or income of a person who has not filed a required return, including liquidators, receivers and agents, must file that person's return. If your role is unclear, a lawyer or accountant can help you confirm where you stand.

Two layers of liability under section 159

The first layer is shared liability. Under Income Tax Act s. 159(1), 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, and CRA may take actions in the representative's name.

The second layer is personal liability for distributing without a certificate. Before distributing property in their possession or control, a legal representative (other than a trustee in bankruptcy) must obtain a certificate from the Minister, applied for in the prescribed form, showing the relevant amounts have been paid or secured. A representative who distributes without the certificate is personally liable for the unpaid amounts, limited to the value of the property distributed, and the Minister may assess the representative for that amount at any time.

That liability applies whether the tax is assessed before or after the actual distribution. It is capped at the value of the property distributed, and interest accrues. In practical terms, tax that surfaces in a reassessment years later can still land on you.

What counts as a distribution

A distribution happens when the representative gives up control and transfers the property, not when the beneficiary gains the right to it. Appropriating property also counts as a distribution. Under s. 159(3.1), an appropriation of property by a legal representative is treated as a distribution to a person for the purposes of s. 159(2) and (3). So an executor who is also a beneficiary cannot simply take an asset without the same risk.

There is one important exception. Trust income paid or allocated to beneficiaries is not a distribution of property, so no certificate is needed for it.

GST/HST and partial distributions

A parallel rule applies to GST/HST. Estates need a certificate when distributing assets if the deceased had a GST/HST number. Excise Tax Act s. 270(3)-(4) requires a representative to obtain a GST/HST certificate before distributing property or money, failing which they are personally liable up to the value distributed. That certificate is requested on Form GST352.

A representative need not obtain a certificate before each distribution if enough property remains to cover any liability, which is the basis for a partial distribution with a holdback. No CRA guidance gives a formula for how much to hold back, so the amount is a judgement call to make with a lawyer or accountant. Where a holdback is planned, the application must include a statement of distribution to date and the proposed distribution of any holdback or residual.

No small-estate exemption is set out in the rules. Section 159(2) applies to any legal representative who distributes property.

What a certificate does and when it may not be available

A clearance certificate confirms that an estate, trust or corporation 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. Once it is issued, liability for any remaining tax rests on the estate, trust, corporation, beneficiaries or others who received the assets, rather than the representative.

• It covers income taxes, interest, penalties, CPP contributions and EI premiums. Coverage of payroll deductions or other program accounts is not confirmed, so ask CRA.
• It covers only property controlled up to the request date. If new assets are discovered later, you must obtain another certificate before distributing them.
• It is generally not issued if the estate cannot cover all tax, interest and penalties owing.

If the estate is short of funds, the certificate route may be closed, so get advice before distributing anything to anyone.

What to do next

• Confirm whether you are the executor, liquidator or administrator, and notify CRA of your status if needed.
• Hold off on distributing or taking any estate property until you have taken advice on the certificate.
• File the required returns, including the final return and any T3 returns, and pay or arrange security for what is owed.
• Consider whether a partial distribution with a holdback is appropriate, and have a lawyer or accountant help set the amount.
• Check whether the deceased had a GST/HST number.
• Keep records of assets, distributions and CRA correspondence.

The application steps are covered in a separate article on clearance certificates. A lawyer or accountant can confirm how these rules apply to your estate.

Frequently asked questions