What is a Clearance Certificate for an Estate?
A Clearance Certificate is a certificate that is issued by the Canada Revenue Agency (CRA) and confirms that all amounts owing to the CRA by a deceased and/ deceased’s estate have been paid. A clearance certificate ensures that the CRA cannot hold the executor of the estate personally liable for any unpaid taxes from the estate.
The certificate covers a period up to a specified date, and it includes the following debts:
- Income tax of the deceased and/ or the deceased’s estate;
- Penalties and Interest payable by the deceased and/ or the deceased’s estate;
- GST/HST Credits; and
- Canada Pension Plan contributions and Employment Insurance premiums.
Do I need a Clearance Certificate?
A clearance certificate is not mandatory. However, not getting one could have severe risks for the executor of an estate.
Without a clearance certificate, if an executor of an estate distributes part of the estate and it then turns out that there was a tax debt owed, the CRA can hold the executor personally liable for any outstanding amount that should have gone to the CRA but was instead distributed.
If the executor of the estate is the sole beneficiary and is confident that there are no potential tax issues, he or she may decide not to get a clearance certificate.
Before applying for a certificate, you need to determine if it is necessary. The following are scenarios where the certificate is not necessary:
- The estate of trust continues to exist to pay income to the beneficiaries;
- The corporation’s assets and liabilities are being rolled over into another corporation and there is no other tax liability; and
- Enough funds remain in the estate or corporate account to pay amounts owing to the CRA.
How to Apply for a Clearance Certificate?
Before applying for a certificate you need to do all of the following:
- Notify the CRA of the death (individual);
- File the final tax return(s);
- Get the notice(s) of assessment and notice(s) of reassessment that apply; and
- Pay or secure all amounts owed.
Clearance Certificate Deadlines
The clearance certificate covers the period up to the designated tax wind-up date (the date of the final T3 Trust Income Tax and Information Return form). A certificate can be requested when an estate is ready for final distribution and all tax returns for the deceased and the deceased’s estate have been filed, (re)assessed, and all balances owing paid in full.
If T3 estate tax returns were not required, you can request a date of death certificate. This covers the period up to the date of death. If the final distribution of the estate assets will not occur for several years, it could be beneficial to obtain a date of death certificate or an interim certificate.
If the CRA does not request an audit, you should receive your certificate within 120 days of applying. Once you receive the certificate, then you are cleared to make distributions from the estate.
Who Must Apply for a Clearance Certificate?
An executor, trustee, or administrator of the estate can request a clearance certificate. An executor or a trustee is named in the deceased’s will or trust document. An administrator is appointed by the court if the deceased dies intestate (without a valid will) An authorized representative can also request the certificate on behalf of the executor, trustee, or administrator. To authorize a representative, the executor, trustee, or administrator will need to sign a T1013 Authorizing or Cancelling a Representative form. One form should be completed for the deceased using their Social Insurance Number and a separate form should be completed for the estate using the Trust Account Number.
If you are an Executor of an Estate and need assistance obtaining a Clearance Certificate, contact our firm for a free consultation. We are here to help!
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.