Now that tax returns for Estates have been filed (or should have been!), we can expect to see Notices of Assessment issued by the CRA over the next few months. For Estate Trustees who are wrapping up their administration of an Estate, this Notice of Assessment is a crucial step in obtaining a Clearance Certificate and closing up the estate.

A Clearance Certificate is required under s. 159(2) of the Income Tax Act before the Estate Trustee can make the final distribution of an Estate’s assets. Without a Clearance Certificate, if the Estate Trustee distributes all of the assets of an Estate, any amounts which remain owing to the CRA may be drawn from the Estate Trustee’s personal assets. A Clearance Certificate is the CRA’s way of telling an Estate Trustee that they have reviewed the Estate’s filings, there is no money owing, and that the Estate Trustee can proceed to distribute the remainder of the Estate.

Obtaining a Clearance Certificate is done, like most things in Estate Administration, through planning, timing and paperwork. From a practical standpoint, the process is usually:

  1. The Estate Trustee chooses a date to be the final Distribution Date;
  2. The Estate Trustee holds back an amount that they think will cover any outstanding tax liabilities;
  3. The Estate Trustee files a final T3 within 90 days of the Distribution Date (reporting any interest earned, etc.);
  4. The CRA issues a Notice of Assessment (“NOA”);
  5. On receipt of the NOA, the Estate Trustee submits a filled-in Form TX 19 (available here) with the relevant tax services office;
  6. On receipt of the TX 19, if satisfied, the CRA issues a Clearance Certificate;
  7. On receipt of the Clearance Certificate, the Estate Trustee can distribute the hold back funds from step 2 to the beneficiaries;
  8. The Estate Trustee should obtain final releases from the beneficiaries for this distribution, and close the Estate Account.

Importantly, if the Estate Trustee continues to hold estate property after the Distribution Date, they are considered to do so on behalf of the beneficiaries (rather than on behalf of the Estate) and any income from that date accrues to (and the obligation for payment of tax falls on) the beneficiaries.

At Mills & Mills LLP our estate lawyers can assist you in navigating current estate administration procedures, including estate tax matters and the application for a Clearance Certificate. We can also assist by serving as Estate Trustee, lending our experience to the role, particularly on complex estates. To learn more about how we may be able to assist you please reach out to us online or by phone at 416-863-0125.

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