Is an Executor Personally Liable for Unpaid Taxes in Canada?

Being named executor often feels like an honour until the paperwork starts. Along with the will, the funeral and the final return, you may be dealing with a tax debt that the person left behind. Many executors worry that the Canada Revenue Agency (CRA) can come after their own savings.

The short answer is that it depends on what you do with the estate's property. Federal law gives you a way to protect yourself, called a clearance certificate. This article explains who counts as a legal representative, when personal liability arises, and how the certificate works.

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

Who counts as a legal representative

CRA treats 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. So the label on your paperwork is not the only thing that matters.

In most cases the legal representative 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 you wait for a court appointment, or if none is made, you can ask CRA to recognize you for tax matters by submitting Form RC552. That covers CRA matters only, not your other estate duties.

How your liability works under the Income Tax Act

There are two layers. First, 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.

Second, before distributing property in your possession or control, you must obtain a certificate from the Minister, applied for in the prescribed form, confirming that the relevant amounts have been paid or secured. If you distribute without it, you are personally liable for the unpaid amounts, limited to the value of the property distributed. The Minister may assess you for that amount at any time.

This applies whether the tax is assessed before or after the actual distribution. The liability is capped at the value distributed, and interest accrues. No small-estate exemption is set out in the statute, which applies to any legal representative who distributes property.

What counts as a distribution, and what does not

A distribution happens when you give up control and transfer the property, not when a beneficiary becomes entitled to it. Appropriating property also counts. If you take property for yourself, it is treated as a distribution to a person.

No official guidance gives a formula or percentage for how much to hold back, so any figure is a judgement call. If you plan an interim distribution, speak with a lawyer or accountant about how much to keep in the estate. When you apply, you must include a statement of the proposed distribution of any holdback or residual.

GST/HST, new assets and estates that cannot pay

• GST/HST: if the deceased had a GST/HST number, the Excise Tax Act s. 270(3)-(4) requires a representative to get a GST/HST certificate before distributing property or money, or be personally liable up to the value distributed. This uses Form GST352.
• Other program accounts: the CRA guidance names only CPP and EI as other amounts covered, so ask CRA about payroll or other accounts.
• Assets found later: a certificate covers only property controlled up to the request date. If new assets turn up, you must obtain another certificate before distributing them.
• Estates that cannot pay: the certificate is generally not issued if the estate cannot cover all tax, interest and penalties owing.

Once a certificate is issued, liability for any remaining tax rests on the estate, trust, corporation, beneficiaries or others who received the assets, rather than the representative. A certificate can also issue where the Minister has accepted security for payment, but you should contact CRA first about what security is acceptable.

What to do next

Hold off on distributing until you know where the tax stands. Apply only after the required returns are filed and assessed and all amounts are paid or secured. Do not submit the request with the tax returns, because that delays their assessment.

• Confirm you are the legal representative and send CRA proof, such as the will or letters of administration.
• File the final return and any T3 returns and wait for the notices of assessment.
• Apply on Form TX19, and add Form GST352 if there is a GST/HST number.
• Include the will, an asset list and a statement of distribution to date and proposed holdback.
• Allow time: CRA aims to acknowledge within 45 days, and assessment can take up to 120 days.
• Get advice before any interim distribution or if the estate may be short of funds.

If a request is denied, the denial states what is missing, and you can reapply once the issues are resolved. A lawyer or accountant can confirm how these rules apply to your estate.

Frequently asked questions