Can an Alberta Executor Be Personally Liable for Unpaid Taxes?

Serving as an executor in Alberta can feel risky when beneficiaries are asking for their share and you are not sure the tax is settled. The worry is real: the tax rules can make you personally responsible if you hand out estate property too early.

This article explains when that liability arises, what kinds of tax an estate may face, how a clearance certificate works, and the practical steps that help protect you. These are federal rules, so they apply in Alberta as elsewhere. How they apply to a particular estate depends on its facts, so it is worth confirming with a lawyer or accountant.

This article covers the law of Alberta.

When personal liability arises

Before distributing property under their control, the legal representative must obtain a clearance certificate. If they distribute without one, they are personally liable for the amounts owing, up to the value of the property distributed.

A final T1 return must be filed for every person who dies, by the legal representative. Unpaid tax on that return bears compound daily interest from the day after the due date until paid in full.

What tax an estate may have to pay

When a person dies they are considered to have sold all their property just prior to death, even though no sale occurs, and this may create a capital gain or loss. The gain or loss is the fair market value on the date of death minus the adjusted cost base. It is reported on Schedule 3 and line 12700 of the final return by the legal representative.

That capital gains tax falls on the deceased's final return, so it is paid out of the estate and not by the heir. Sales made by the estate after death are reported by the estate on a T3 return. Amounts the deceased was owed but had not received are generally included in the final-year income at their value at death.

Several exceptions can change the result, so each asset is worth checking:

• Spouse or common-law partner: property passing to a Canadian-resident spouse, common-law partner or qualifying spousal trust is deemed disposed of at adjusted cost base instead of fair market value. The spouse or partner must be a resident of Canada at death, and the property must be locked in for them no later than 36 months after death. The legal representative can elect not to use this rollover, property by property.
• Principal residence: gains on a home may be fully or partly exempt, but the property must still be reported using Schedule 3 and Form T1255.
• RRSP and RRIF: the CRA considers the annuitant to have received the fair market value of all RRSP property just before death, included in income in the year of death. If a spouse is the sole designated beneficiary and all the property is transferred to a qualifying plan by December 31 of the year after death, the annuitant is not considered to have received it.
• Farm or fishing property: special rules may apply on a disposition or deemed disposition of qualified farm or fishing property.

What a clearance certificate does

A clearance certificate confirms that an estate, trust or corporation has paid the income tax, GST/HST, interest and penalties owed when the certificate was issued, or that the Minister has accepted security for them. It is requested on Form TX19, plus Form GST352 if the deceased had a GST/HST number.

There are limits. It covers only property known when requested, so new assets found later need another certificate before distributing them. A certificate is generally not available if the estate cannot pay all amounts owed.

Timing and process

• Request it only after returns are filed and assessed and taxes are paid or secured; submitting it with the returns delays assessment.
• Documents include the will and probate documents or administrator appointment, a list of assets with adjusted cost base and fair market value, and statements of distributions made and proposed.
• The CRA sends an acknowledgement within 45 days, and assessment can take up to 120 days if all documents are provided.
• Contact the CRA if you have no response within 120 days.

Deadlines and penalties to watch

Other dates apply for self-employed deceased persons and for deaths early in the year before the prior-year return was filed. If a due date falls on a weekend or CRA-recognized public holiday, a return is on time if received or postmarked by the next business day.

What to do next

• Hold off on distributions until a clearance certificate is in hand.
• File the final return and any needed T3 returns on time.
• Gather the will, your court appointment and an asset list with values.
• Search carefully for assets that may surface later.
• Ask whether any spousal rollover, home or RRSP rules apply to the estate's assets.
• Talk to a lawyer or accountant if the estate may not cover its tax, since a certificate is generally not available then.

Frequently asked questions