A clearance certificate is how CRA certifies that no taxes are due
The concern
A trustee can be personally liable for unpaid taxes. Therefore, if a trustee distributes an estate when in fact taxes were due, the trustee may have to fund the tax liability themselves personally (rather than having it paid from estate assets).
This potential liability of the trustee for unpaid taxes is often of considerable concern for an estate trustee.
The solution
The trustee is to apply to Canada Revenue Agency (“CRA”) for a ‘clearance certificate’ which, when granted, formally confirms that no taxes are due for a particular period. The trustee can rely on the clearance certificate and is protected from liability for taxes later discovered to be owing for the period covered by the clearance certificate.
The application
The estate trustee must compile and submit the application for a clearance certificate to CRA. Unfortunately, CRA still has no ability to handle these applications electronically, and they must be filed by mail or fax to the correct CRA processing office (determined according to the postal code of the deceased’s last residence).
The application must include:
- The completed and signed form TX19;
- Evidence that the applicant is the authorized representative of the estate (usually the Certificate of Appointment);
- The will, if any, and all codicils; and,
- A statement of assets and a statement of distribution (formal or informal accounts are usually sufficient).
SIN from beneficiaries
The social insurance number (SIN) of each beneficiary who received assets other than cash should be submitted with the application for a clearance certificate. Accordingly, many trustees request that each beneficiary provide their SIN so that the trustee can submit it to CRA. Note that the SIN of a beneficiary who receives only cash should not be required.
In practical terms, the SIN of a beneficiary who receives personal property of only nominal financial value (such as normal household effects and memorabilia) – for which there will not be any adverse tax consequences – should not be required. In practical terms, the SIN should really only be required when there are potential unpaid taxes, and hence when the beneficiary has received real property or personal property of real financial value such as valuable art or collectibles.
The processing delay
CRA is very slow to process clearance certificate requests. The delay between application and receipt of the certificate is usually months, often as long as 6-8 months.
Most trustees wait until they receive the clearance certificate before making a final distribution of the estate.
Interim distributions while waiting
Because CRA takes so long to process clearance certificate requests, we strongly recommend that trustees consider making an Interim Distribution of the estate, while retaining sufficient funds in reserve (the “holdback”) that they can pay any tax liabilities that might reasonably arise.
Our services
We help estate trustees file applications for a clearance certificate. A complete and accurate application eliminates unnecessary delays, and improves peace of mind and processing times.