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Monday, May 3, 2010

Should an executor get a tax clearance certificate?


Clearance certificates are written notices from Canada Revenue Agency that state that taxes owing, and any interest and penalties on those taxes, have been paid by an estate. This is important because if an executor should distribute the assets of an estate before getting a clearance certificate, and not all taxes have been paid, the executor can be personally liable for payment of the taxes out of his or her own pocket.

The final clearance certificate absolves the executor from that liability. I refer to "final" certificate here because it is also possible to get interim certificates if you are working on a lengthy or complicated estate.

To get a clearance certificate you have to apply for it, because it will not automatically be issued. Usually the accountant who prepares the income tax returns for the estate will send in the application along with the final tax return. You do have to specifically ask the accountant to do this, so if he or she doesn't bring it up for some reason, you should bring it up yourself. If you have a lawyer helping you with the estate, do not expect that the lawyer will apply for this because it's an accounting function.

There is a long wait to receive the clearance certificate once you have applied for it. Allow six months for this. Usually beneficiaries of an estate are unhappy about waiting an additional six months to receive their inheritance, even though they are told that the executor must hold onto at least enough of the estate to pay upcoming taxes. In a future post I'll talk about how to distribute the bulk of the estate while waiting for the clearance certificate.

Lynne's edit: that "future post re interim distribution" is here.
It isn't required by law that an executor get a clearance certificate. However, if you're an executor, it's certainly a good idea to have that confirmation in your hand that you are no longer personally at risk for payment of estate taxes.

10 comments:

  1. My dad's wife is the executrix of this estate. She is also the only residuary beneficiary. My sibling, myself and my dad's wife were all gifted shares in a holding co. She will be finally applying for a clearance certificate in the next few weeks. She wants to wait to distribute the shares until the clearance cert is received and that makes sense to me..however....she has taken non-business cash out of the company that we are all shareholders of (loans, personal expenses, trip etc) and she has used a great deal of the assets outside of the company to buy a house etc (what would qualify as the residue). Would my lawyer have any grounds to pressure her to do an interim distribution on the grounds that she has already essentially given one to herself by using co. assets for personal expenses? Or should I be asking for a passing of accounts at this point? I feel that there is a huge conflict of interest but not sure what I can actually do about it at this point. My current lawyer is not a litigator. Would I be better off to get a litigator at this point? Thanks!

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  2. Great post . It takes me almost half an hour to read the whole post. Definitely this one of the informative and useful post to me. Thanks for the share.I also provide this service plz visit my site.Accounts Directory In essence, a Certified Public Accountant can be best described as a licensed professional that provides accounting, tax, auditing.

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  3. Is it necessary in Ontario Canada to file for a Clearance Certificate if all funds were either gifted or held in joint Right of Survivor. That is, there is/was no estate.

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  4. Is it necessary in Ontario Canada to obtain a Clearance Certificate if there was absolutely nothing in the estate to be distributed as all funds were either gifted or held in joint with right of survivorship?

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  5. My dad died and had a will. I was the only beneficiary. I inherited a nice 300,000 smackers.

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  6. My husband died in 2002. I had accountants do all of his taxes for me as there were the current years' taxes as well as a few previous year's taxes that he hadn't completed. For the next 2 years there were various assessments with some owing here and some owing there. I paid everything and received copies stating balances owing were zero. However, the request for the clearance certificate were made by the accountants, and I received a response from Canada Revenue that I needed to reapply once everything was finished. I am afraid that I totally forgot! Do I still need to do this? It has been over 10 years since the last time they contacted me about anything.

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    Replies
    1. Don't worry, there is no law that says you must have a Clearance Certificate, so you're not in any trouble. If you still want one, then go ahead and apply, but you don't have to.

      Lynne

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  7. My father died in 2013. His bank assets were joint with my mother and transferred by survivorship. His RIF accounts were transferred to her and 60L(V) statements were issued along with T4RIF's. There are no other assets, so there is no probate/distribution. All tax returns have been filed and NOA's received and there is nothing outstanding. Given that my mother is the executor, is there any reason to file for a clearance certificate, other than piece of mind?

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    Replies
    1. Given the facts you've provided, no there probably isn't any specific reason to get the Clearance Certificate. It's always the executor's call.

      Lynne

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  8. A little confusing of when to send the request for the clearance certificate. CRA website says we need to wait till we receive notice of assessments for all years. Shouldn't we get a NOA for final return first?

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