Why Canada Revenue Agency Wants Notices of Assessment First

You are an executor, the returns are filed, and you want to hand the estate's property to the beneficiaries. Then you learn that CRA will not even look at a clearance certificate request until your returns have been assessed. That can feel like one more delay.

There is a reason for the order. The certificate confirms that the tax owed has been paid, or that the Minister has accepted security for payment, and CRA does not issue it for an estate until the required returns are filed and assessed. This article explains what the requirement means and what to have ready.

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

What the certificate confirms

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. It also covers CPP contributions and EI premiums.

CRA does not issue the certificate for an estate unless the required returns are filed and assessed and all amounts are paid or secured. This is why you apply only after the returns are filed and the notices of assessment are received.

What CRA requires before you 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. The conditions are listed below.

• The required returns are filed and you have received the notices of assessment.
• Any reassessments you asked for have been received.
• All income taxes, including provincial or territorial taxes CRA administers, CPP contributions, EI premiums, interest and penalties are paid or secured.
• Legal documents proving you are the representative are ready to submit.

For an estate, the required returns include the estate's T3 returns. Whether other returns, such as the deceased's final return, are also needed depends on your situation, so it is worth confirming with a lawyer or accountant. Circular IC82-6R13 says not to file Form TX19 until the notices of assessment are received, subject to exceptions listed in the circular. Those exceptions are worth confirming with CRA or an adviser.

Do not send the request with the returns

CRA says not to submit the request with the tax returns, as that delays their assessment. File the returns first, wait for the notices, and then apply.

Timing of the T3 return matters too. It is due 90 days after the trust's tax year-end, or after the final distribution if the trust ceases to exist. A late T3 return may attract a separate penalty of $25 per day, with a minimum of $100 and a maximum of $2,500, even with no balance owing.

Why it matters to you personally

A legal representative who distributes property without the certificate is personally liable for the unpaid amounts, limited to the value of the property distributed. The Minister may assess the representative for that amount at any time. Interest accrues on that liability.

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 covers only property controlled up to the request date, so if new assets are discovered later, you must obtain another certificate before distributing them. How this applies to your situation depends on the facts, so it is worth confirming with a lawyer or accountant.

There is an exception to the usual rule. A representative need not obtain a certificate before each distribution if enough property remains to cover any liability. That is the basis for a partial distribution with a holdback. CRA gives no formula for the holdback, so it is a judgement worth discussing with an adviser.

What to do next

• List every return the estate needs, including any earlier years that were never filed, and confirm each one is filed.
• Keep each notice of assessment and compare it with what you filed. If you disagree, deal with that before applying.
• Pay what is owing, or contact CRA first about security, since the acceptable form and amount are not set out in the guidance.
• If the estate cannot cover all tax, interest and penalties owing, the certificate is generally not issued. Get advice early.
• After the notices arrive, apply using Form TX19, and Form GST352 as well if there is a GST/HST number.

Frequently asked questions