Real Time Web Analytics

Pages

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.

35 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!

    ReplyDelete
  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.

    ReplyDelete
  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.

    ReplyDelete
  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?

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

    ReplyDelete
    Replies
    1. That's a wonderful inheritance. And if you got it without having to fight anyone over it, so much the better.

      Lynne

      Delete
  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.

    ReplyDelete
    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

      Delete
  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?

    ReplyDelete
    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

      Delete
  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?

    ReplyDelete
  9. I am a co-trustee of my mothers estate. She owned a house and left a life interest to my step father , her common law spouse. The house will be sold on his death and the proceeds after the estate is settled will be divided equally to her four children. Do we need to apply now for a clearance certificate and are we required to provide our SIN # to the account. We have been advised by the accountant that he needs our SIN#. What is the purpose of this? The title on the house will need to be transferred to the Estate Of, prior to 3 years. We have 8 months to do this. When should we get the certificate and how will it affect the beneficiaries in their own personal income tax.

    ReplyDelete
    Replies
    1. The Clearance Certificate is proof that all taxes owed by the estate have been paid. So there is no way you can apply for it now. You are way premature. The estate isn't finished while it still holds property. Once your step-father has passed, the property is sold, any income is reported and any applicable taxes are paid, you can apply.

      Why not ask the accountant why he needs the SINs? I would expect that it's to keep track of who gets taxable and/or non-taxable assets, but it's probably best to ask the person who is actually going to be using the information.

      Lynne

      Delete
  10. On a clearance certificate it states ... to date of death, partial distribution and final distribution. if to date of death is checked off will i be getting another certificate or is this the Final one and this is finally over?

    ReplyDelete
  11. I received a Clearance certificate for my mothers estate with the box checked off "to date of Death" will i be receiving another certificate final distribution? or is this it. it has been over 3 yrs now since her passing?

    ReplyDelete
    Replies
    1. You won't get another one unless you apply for it. Not all executors do, but that's up to you. If it has been over 3 years, you've probably distributed the assets by now and completed all the tax returns, so you could apply.

      Lynne

      Delete
  12. My sister died 5 years ago. I am the executor and I got two clearance certificates from the CRA, one for her person and one for her estate. Now, 5 years later, the CRA have sent me a new bill saying money is owed on her personal account. Can the CRA do this after they have issued a clearance certificate?

    ReplyDelete
    Replies
    1. I think your best bet is to ask an accountant about this. Accountants are the experts on taxes and CRA, and know a lot more about them than I do.

      Lynne

      Delete
  13. My mother passed away four years ago, my sister and I were co owners of her house. She left some assets in RIF and death insurance. We paid all taxes on my late mother income tax. Recently I applied for the clearance certificate and we got back letter asking for the list of assets and distribution. Do I need clearance certificate if taxes were paid on the income and balance is zero. Why do I need sent list of assets?

    ReplyDelete
    Replies
    1. When you apply for a clearance certificate, you are asking CRA to certify that there are no further taxes (income or capital gains) against the estate. They won't know there are no more taxes if you don't say what the assets are. For example, what if there was a cabin or something still in your mother's name? On sale or gift of the cabin there would be capital gains tax. They don't necessarily know what else your mother had. Maybe they're interested in the title to the house being held by a mother and two of her kids. Maybe they want to double-check what you've done, since it has been four years. In my experience, CRA always asks for this. It makes sense to me, since they can't just issue a clearance certificate to people without getting the whole story.

      Lynne

      Delete
  14. I'm the executor of my father-in-laws estate. It asks for a list of assets, how detailed does this nee to be? He was joint owner of a property, do they need to know more than that? such as the # of sheds, out buildings, tools, lawnmower :)

    ReplyDelete
    Replies
    1. Hi Steve,
      I'd include more detail rather than less. If you don't mention any of those items, there are two problems:

      1. When you list the value of the property, you are listing the price at which it would likely sell. Unless every tool and lawnmower and couch is going with the house, you will have omitted the value of the items from the inventory.

      2. If you don't make some mention of the contents of the sheds, you are not painting an accurate picture of the estate for the court, or for the beneficiaries. Trust me, some of the beneficiaries won't like that and you'll be bombarded with questions.

      Try to keep in mind that the number one problem between the various parties to an estate is a lack of information coming from the executor. Holding back leads to speculation and suspicion, and eventually hostility.

      Your inventory does not need to describe every wrench and hammer. You can group similar things together so that you've got, for example, "tools and garden implements" with one price on the whole group.

      Lynne

      Delete
    2. More stuff, my father-in-law and mother-in-law had a business (sole proprietorship) which had some tools and so on and a bank account with a line of credit which my mother-in-law paid off with insurance $'s. Do I reference these tools separately and do I list the LOC?

      Delete
  15. I have just received the NOA for my father's final taxes. It states that there is nothing owing. At the time of his passing he owned no property and any stock was converted to cash with all capital gains reported on the final taxes. (Total value under 100k). Would it be advisable to persue a Certificate if it was only cash that made up his final estate?

    ReplyDelete
  16. I received a "to date of death" certificate. What is the difference between this and a "final distribution" clearance certificate? Thank you!

    ReplyDelete
  17. I have this same problem - can anyone advise me please? Thank-you kindly,
    George

    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!

    ReplyDelete
  18. My husband was the executor and only beneficiary of his brother's will. We originally purchased property together, my brother-in-law owning one half. We built and paid for a home on our half of the property. It was our understanding (and our brother-in-laws) that the property was titled as joint tenancy, but discovered after his death that it was tenants in common. Unfortunately this was not stated anywhere on the title, so we were unaware of the problem until we tried to transfer it after his death. As a result this has cost us a lot of money and stress! We have since gone through probate and paid all of his bills, etc. This was done through an estate lawyer who has since passed away and an accountant (who has since retired and sold his business). We have a Clearance Certificate. We are now considering selling our property. Does the certificate mean that we don't have to pay anything more, or would we have to pay taxes on the property if it is sold? Is there a way to find out? Thank you.

    ReplyDelete
  19. It has veen nearly a year and i have not recieved my i heritance due to this certificate. It says could take six months but its been well over so is there a max that it could take?

    ReplyDelete
    Replies
    1. It has been a year... since what? It takes about 6 months from the time someone applies for it. It cannot be applied for until the estate is finished, so that means the application is usually made about a year after someone dies.

      Lynne

      Delete
  20. My mentally challenged Aunt passed in Feb 2015. She was a Ward of the Court in BC. Incapable of working during her life. Her only asset was a $200,000. GIC which was untouched over the 20 yrs it existed. Approx $25,000. interest was earned. 2 of 3 beneficiaries accept this, but the daughter of one beneficiary wants detailed accounting of interest, and release forms to be signed by all 3 beneficiaries. She is creating a "special" release on behalf of her father who is the problem beneficiary. They live in Ontario, all others live in BC. Is all this necessary when we have a clearance certficate? (oh, she, the daughter, is an intellectul property lawyer, and has little experience in estates)

    ReplyDelete
    Replies
    1. Who is the executor of the estate? If the executor wants releases signed, then the executor should provide an accounting and ask for the releases. It's not up to a beneficiary to decide that other beneficiaries must sign a release.

      It is fair, though, for a beneficiary to require an accounting of the interest earned so that she can check herself that the math has been done right. Wanting an accounting doesn't make someone a "problem" beneficiary!

      None of this has anything to do with a clearance certificate. All the clearance certificate does is give CRA's okay that all taxes have been paid. A release is a way of the beneficiaries approving of the executor's actions. They serve very, very different purposes.

      Whoever is the executor (or court-appointed administrator) needs to make a decision about releases.

      Lynne

      Delete
  21. Hello: My mother died in 2008. Her accountant filed all the appropriate income tax returns, etc. Unfortunately he died before we had a chance to apply for a clearance certificate, which we have thus never obtained. I am currently trying to organize and declutter my house; as I go through old papers, I am coming across reams of investment income statements, receipts, and other such things of hers. I wondered if it is OK to get rid of them or do I need to hang on to them.

    ReplyDelete
    Replies
    1. I'm no expert on CRA policy but I believe they like people to hold onto tax-related material for 7 years. Maybe check their webpage.

      You haven't said whether the estate was completely finalized, though it seems that's what you mean. A clearance certificate is not required by law. Executors usually do apply for them though, because the certificate provides proof that there is no more outstanding tax owing, clearing the way for the executor to distribute the estate.

      Lynne

      Delete
  22. Hi. Very helpful. I have a question, regarding the CRA clearance certificate. Will the CRA ask for a further tax form from the previously deceased spouse? The executor is wanting to hold back inheritance money from my father's estate, until CRA is satisfied with the tax form requested of my mother , who died 2 years before my father.

    ReplyDelete
  23. I tried to do the right thing & hired a chartered accountant to do my deceased father’s income tax & trust returns. Accountant told me not to worry about deadlines. Just got first notice of assessment for most recent return, with a penalty & interest totalling $515.00, as return was 90 days late. Can I demand that money from accountant?
    There are 3 more returns still with CRA, that I ended up sending in with voluntary disclosure applications, as I came to realize they were all overdue. If penalties get charged, can I never pay the accountant’s fee?

    ReplyDelete

You might also like

Related Posts with Thumbnails