The CRA and Clearance Certificates

Clearance certificates from CRA are an important but not well-understood aspect of estate administration.

A clearance certificate is a formal legal document from the Canada Revenue Agency that confirms that no taxes are due up to a certain date.

In the estate context, they often operate as the last formal step that must be taken before final distribution to the beneficiaries of the residue of the estate.

For estates that do not have a passing of accounts in Court, there is no formal ‘end’ to the estate.  The receipt of a clearance certificate often plays acts as an informal end of the estate administration.

Clearance certificates protect trustees

An estate trustee can be personally liable for income taxes of the deceased or the estate not paid prior to distribution of the estate.

A clearance certificate protects the estate trustee in so far as it confirms that no income taxes are due for the period covered by the certificate.

It is important to verify which period is covered by the the certificate.  Is it to death?  To a later date?  To final distribution?  Only coverage of all periods provides certainty that all taxes have been declared and remitted.

Clearance certificates protect beneficiaries

Clearance certificates can provide important protection to beneficiaries.  In particular, a clearance certificate confirms that the trustee has properly reported and paid income taxes and that CRA will not be ‘coming after’ a beneficiary for income taxes due by the deceased or their estate.

CRA has the power to collect income taxes no paid from beneficiaries of funds – for instance, the beneficiaries of an RRSP.  A clearance certificate confirms that funds received by the beneficiary will not be subject to claw-back, and that the beneficiary can spend the funds that they  have received.

Clearance certificates and interim distributions

There is no requirement that an estate trustee receive a clearance certificate before making any distribution of the estate.  In our view, far too many estate trustees do not make reasonable interim distributions of the residue, and often the reason that they provide is that they are waiting for a clearance certificate before making any distribution of the estate.  Trustees are not required to wait until they have a clearance certificate before they make an interim distribution.  Learn more about interim distributions here.

Clearance certificates – application and processing time frame

The estate trustee should apply for a clearance certificate as soon as practicable (as soon as all income taxes have been filed and paid).

The application requires a particular form (a TX 19) together with the required supporting documentation and an appropriate cover letter.  We can help.

The processing time for clearance certificates is very long – far longer than it should be if CRA were properly fulfilling its mandate to Canadians.  Delays of up to 120 days are not uncommon.

In order to reduce the delay, trustees should ensure that they file a complete and properly

Trustees should ensure that they have dealt clearly and properly with the issue of ‘trustee compensation’ in their application for the clearance certificate.   Executor compensation is taxable income and must be reported by the recipient and income tax paid accordingly.  This issue should be clearly addressed in the request to expedite clearance certificate processing.

Miltons Estate Lawyers – Probate, Wills, Trusts and Estate