CRA Clearance Certificates: Why Executors Wait Before Final Distribution

Beneficiaries often ask the same question months after probate: the house is sold and the accounts are closed, so why hasn't the money been paid out? Very often the answer is that the executor is waiting for a clearance certificate from the Canada Revenue Agency.

This article explains why the federal Income Tax Act makes that certificate so important for an executor, what has to happen before you can apply, how long the CRA says it takes, and how a holdback lets you make partial distributions in the meantime.

What a clearance certificate is

A clearance certificate is a document from the CRA confirming that all income tax, interest and penalties owed by the deceased and the estate have been paid, or that the CRA has accepted security for them. It is the executor's proof that it is safe, from a tax point of view, to hand the remaining property to the beneficiaries.

The requirement comes from section 159(2) of the federal Income Tax Act. Every legal representative of a taxpayer, which includes an executor or administrator, must obtain a certificate before distributing property under their control. The certificate covers amounts the deceased is, or can reasonably be expected to become, liable for at or before the time of distribution, and amounts the executor is liable for in that capacity.

Why executors take it seriously: personal liability

Section 159(3) sets out what happens if an executor distributes without the certificate. The executor becomes personally liable for the unpaid tax to the extent of the value of the property distributed, and the CRA can assess the executor at any time, with interest. The CRA's information circular IC82-6R13 adds that this liability covers unpaid amounts whether they were assessed before or after the distribution.

Two points catch people out:

• Taking property yourself counts. Under section 159(3.1), an executor who appropriates estate property, for example by keeping a car or transferring the home to themselves as a beneficiary, is treated as having distributed it.
• Beneficiaries are hard to chase. Once money is paid out, recovering it from beneficiaries to cover a later tax bill can be slow, costly or impossible, and the executor is the one the CRA can assess.

What must happen before you apply

The CRA's guidance says to request a clearance certificate only after:

• All required returns are filed and you have received the notices of assessment (and any reassessments). For an estate this usually means the deceased's final return, any earlier unfiled years, and any returns for the estate itself.
• All amounts are paid or secured, including income tax, interest and penalties.
• Proof of your authority is on file, such as the will and grant of probate, or letters of administration.

The CRA specifically asks executors not to submit the clearance request at the same time as the returns. Applying too early simply adds to the wait.

Applying with Form TX19

The income tax request is made on Form TX19, Asking for a Clearance Certificate. If the deceased had a GST/HST account, there is a separate application on Form GST352. You can submit through the CRA's online document services (My Account or Represent a Client) or by mail or fax; for British Columbia, the CRA's page directs paper requests to its Surrey tax services office.

For an estate, the CRA asks for documents including the will and probate documents, a list of assets at the date of death with their cost and fair market value, a statement of distributions made so far and a proposed distribution of any holdback, and details of beneficiaries receiving property other than cash.

How long it takes

The CRA says it sends an acknowledgement within 45 days and that the assessment of a complete request can take up to 120 days, although an audit may be needed first. That clock starts only after the returns have been filed and assessed, so in practice the wait from death to clearance is often many months. If new assets turn up after the certificate is issued, the CRA requires another certificate before those assets are distributed.

Holdbacks and partial distributions

Executors do not have to keep the whole estate frozen. According to IC82-6R13, you do not need a certificate before each distribution as long as you keep back enough property to pay any amount owed to the CRA. A common approach is an interim distribution with a reserve sized to cover the expected tax, interest and professional fees, with the balance paid once the certificate arrives.

In BC, tax is not the only timing rule. The Wills, Estates and Succession Act separately limits distribution in the first 210 days after the grant, which our article on the 210-day rule for estate distribution explains. For where the clearance certificate fits in the overall sequence, see our step-by-step guide to executor duties, and if you are a beneficiary frustrated by the wait, our article on executor delay sets out your options.

Planning the final distribution of an estate?

Our probate and estate lawyers can work with your accountant on the order of the estate's tax filings, prepare the clearance certificate request, set a sensible holdback, and keep beneficiaries informed while you wait.

Call 604-259-2844 or send us a message to arrange a consultation at our Vancouver office.