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Monday, July 5, 2010

How do I get a Tax Clearance Certificate


A tax clearance certificate is a notice you receive from Canada Revenue Agency that states that all taxes owing on an estate have been paid. Although it is not the law that every executor must get one, the majority of executors will do so. This is because if the executor goes ahead and distributes the estate to the beneficiaries and then later finds out that there is tax owing, the executor himself might have to pay the taxes out of his own money.

I'm often asked how a person goes about getting a tax clearance certificate. The certificate does not come out automatically; it has to be requested in the right way at the right time. The vast majority of executors that I've worked with have asked the accountant who does the tax returns for the estate to request the clearance certificate. This is because accoutants who are familiar with taxation know how and when to get it.

However, if you want to request one yourself, here are the basic steps:


  1. file all of the necessary tax returns for the deceased and the estate;

  2. receive the Notice of Assessment for the returns you've filed;

  3. fill in a form called TX19, that you can find online here;

  4. send the form to your local tax office, along with a copy of the Will, a copy of all probate documents and a statement of proposed distribution.

  5. wait.

It takes a long time to get the tax clearance certificate. You should expect to wait several months in most cases. Because of the long wait and the unwillingness of beneficiaries to wait longer than necessary for their inheritance, there is a process in place for making an interim distribution of the bulk of the estate while keeping back enough money to pay the taxes and future expenses. I'll post about that interim process in a separate post.

To go to the Canada Revenue Agency page on clearance certificates, click here.

23 comments:

  1. Are beneficiaries required to provide their SIN number to estate executors for any reason at all??

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  2. I am confused about the period covered. For someone that died in 2012, do I put the date of death or December 31 or the date of requesting it? I don't want to date it now if CRA is going to ask for a 2013 tax return.

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  3. Our lawyer said he had the Certificate of Clearance and distributed the inheritance. Now one year later Canada govt re-assesses and says there is almost 100k owing. Is it up to the beneficiaries to pay or has the laywer made a mistake and should be responsible?

    ReplyDelete
    Replies
    1. Did the lawyer actually have the certificate? If he really did have it, he didn't make a mistake. I assume you have a copy of the certificate.

      Also, who applied for the certificate? Did the lawyer apply for it, or the accountant? I'm wondering because the certificate would have been based on the information on the tax returns. Lawyers should not be preparing tax returns for the estate, so I hope you had an accountant for that. If the lawyer prepared the actual tax returns for the estate, then yes, he made a big mistake and should be liable.

      Lynne

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  4. Do you have to get a clearance certificate if there is no money in the estate or any property or assets to sell. There is more debt then anything and still owes Revenue Canada $3,600, credit cards have been written off, sold personal belongings for about $360 - doesn't even cover my costs

    ReplyDelete
  5. Do you have to get a clearance certificate if there is no money in the estate or any property or assets to sell. There is more debt then anything and still owes Revenue Canada $3,600, credit cards have been written off, sold personal belongings for about $360 - doesn't even cover my costs

    ReplyDelete
    Replies
    1. If there is still tax owing to Canada Revenue Agency, you can't get a clearance certificate. The certificate is only issued once all taxes are paid.

      Lynne

      Delete
  6. Why does it take so long for the Clearance Certificate take so long to come back when the tax return was sent and returned with-in 4 weeks. they tell us the Certificate could take anywhere from 8 months to 2 years to get. Why not sent it back the same time they sent the taxes back

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    Replies
    1. I know, right? It takes forever to get them, and I honestly don't know why it takes so long.

      Lynne

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  7. This comment has been removed by the author.

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  8. Hello Lynne,

    I am 1 of 4 beneficiaries of my father's estate. My question is about an Interim Distribution Release form that was sent out. All 4 beneficiaries were sent an Interim Distribution release form and a Statement of Account a couple of months ago from the estate's lawyer. I asked for clarification on something and yesterday I received my answers as well as a Revised Statement of Accounts and Release form. The amount of the Interim Distribution is less because the Executor' fees are much higher now. I have been in contact with one other beneficiary and they have not yet signed the original Release or even received the new Revised Statement of Accounts.

    My question is should all of the beneficiaries receive the new Revised paperwork or is it okay for them only have the original Statement of Accounts?

    ReplyDelete
    Replies
    1. They should all receive the new one, since they are all going to be part of the same distribution based on the same numbers.

      Lynne

      Delete
  9. i am on odsp -my mother passed two months ago and without her help legally with odsp i have not been able to make the bills or buy food etc Can i get am emergency interim distribution to tide me over scared and afraid of no money at all right now not even to park at the local hospital---pretty frightening as she neglected to set anything up for me financially till probate is done

    ReplyDelete
    Replies
    1. That certainly does sound like a scary situation for you. I really hope the executor doesn't delay getting probate.

      An interim distribution is normally not a problem. An executor normally has the discretion to make an interim distribution if circumstances warrant it, and in your case it sounds as if they do.

      The only thing that might make it difficult for the executor is that your inheritance may well be held in a trust, as opposed to be given to you outright. I'm assuming that because you said you are on ODSP. Usually a parent will set up a will with a Henson Trust to try not to get the beneficiary (in this case, you) bumped off the ODSP benefits. Obviously I can't say for sure that this is what your mother did, since I haven't seen the will. Assuming she did set up a Henson Trust, the executor WILL be able to access some trust funds to give to you on an interim basis.

      The amount that ODSP allows you to have before losing your benefits is pretty small. I don't work in Ontario but I believe the amount is $5,000. If you get more than that in a lump sum from the estate, you may well lose your benefits, so work with the executor to agree on an amount that will see you through but won't cause trouble with your benefits.

      I hope that you and the executor get along well so that you can simply make an informal request for an interim distribution and not have to go through lawyers or anything like that.

      Best of luck,
      Lynne

      Delete
  10. Does it take six months for a government clearance certificate or do they sometimes come earlier

    ReplyDelete
    Replies
    1. They do sometimes come earlier. A reader left me a note yesterday saying that hers had arrived within 3 months. I usually seem to see them at around the 6 month mark.

      Lynne

      Delete
  11. My mothers final taxes are complete all taxes owed are paid NOA has been received.There was no property she went through bankrupty proceedings 4 yrs ago.I had power of attorney throughout the last couple years of her life.There only $1,000 in the estate account to be distributed between my sister and I.Do I have to bother asking for a clearance certificate?

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  12. I know my mother did not have any debt,her taxes are done and NOA received,taxes are paid.She went through bankruptcy proceedings a couple years before her death.I was POA throughout the bankrupcy and continued until her death,do I need to worry about a clearance certificate.If I don't apply for one what does CRA do?

    ReplyDelete
    Replies
    1. You are not required to get a clearance certificate and if you don't apply for one, CRA will not force you to get one. Most executors ask for them because they want the official okay that there are no more taxes out there for the estate. This offers them the protection of knowing they've covered everything. If an executor distributes an estate to the beneficiaries without having paid all of the taxes, the executor may be personally liable for those taxes, so most executors like the reassurance that won't happen.

      In your case, it sounds as if you are very familiar with your mother's finances, and you may feel confident that you've covered everything. If you're her executor, it's your call.

      Lynne

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  13. Thank You Lynne, good to know just glad to be finished with everything.

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  14. Hello, Lynne.

    My mother passed last October. She was a U.S. citizen and living as a resident in Canada. Her Canadian accountant (who had done her taxes for the last few years, so he is familiar with all her accounts) is the one who drew up her will and is also the executor. Her U.S. checking account is under a family trust (none of her other assets are). My sister and I were staying in her house while she was passing. The day after she died the executor came in, took a brief look around, and only asked for her ID cards. I had been sorting through her paperwork, which he saw and didn't have an issue with. He allowed us to continue to stay in the house for another week to sort through her items (without his supervision), since we had both traveled from the States and it would have been cumbersome to have to come back again. Now, almost a year later, his office is saying they never found the trust paperwork in her house, which I did see when I was there. They told me they can't get a tax clearance certificate without it and the entire estate cannot be distributed, not just that one account. They are going to hire a U.S. lawyer to somehow try and remedy this, but where does the liability lie? Did he have a duty to ask for a copy of the trust when the will was originally drawn up, especially sine he was already aware of its existence? Or, at the least, shouldn't he have made sure he had everything he needed the day he came in before letting us continue to stay in the house, if by a slight chance it got misplaced by us? If so, should he pay the lawyer fees, not the estate?

    Thanks in advance for any advice or help you can offer!

    Sarah

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    Replies
    1. In my view, the accountant is responsible for this whole mess. For one thing, he should not have drawn up a will for a client. He's not a lawyer. He could lose his job for that, and possibly his accounting license.

      He obviously has no idea how to be an executor any more than he knows how to prepare a will. Yes, he should have searched the house for all relevant paperwork. That's what executors do. Now he has made a mess because of his own negligence.

      It seems to me that this idiot is just counting the dollars he thinks he's going to get as an executor fee. I suggest you hire a lawyer of your own. This guy needs to be stopped before he pulls this stuff on other families.

      Lynne

      Delete
  15. Can the government come after the estate once a clearance certificate has been issued and the estate has been closed?

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