This circular cancels and replaces Information Circular IC82-6R11 dated March 2016. 1. This circular explains the need for a clearance certificate issued under the Income Tax Act. To ask for a clearance certificate, complete Form TX19, Asking for a Clearance Certificate and provide the required documents listed on Form TX19. This will help us to issue the certificate without delay.
2. Subsection 159(2) of the Income Tax Act (the Act), requires a legal representative, which we define in paragraph 3, to obtain a clearance certificate before distributing property that he or she controls in their capacity as the legal representative. As a legal representative, if you distribute the property without a certificate, you are liable for any unpaid amounts (see paragraphs 4 and 5). You do not need a clearance certificate before each distribution, as long as you keep enough property to pay any liability to us. 3. A legal representative is a person who administers, winds up, controls, or otherwise deals with a property, business, or estate of another person who may be an individual, a trust, or a corporation. A legal representative of a taxpayer, for the purposes of subsection 159(2), is an assignee, a liquidator, a curator, a receiver of any kind, a trustee (not including a trustee in bankruptcy), an heir, an administrator, an executor, a liquidator of a succession, a committee, or any like person, administering, winding up, controlling or otherwise dealing in a representative or fiduciary capacity with the property that belongs, or belonged to, or that is or was held for the benefit of, the taxpayer or the taxpayer’s estate. The reference to any other like person includes any person acting as a liquidator, whether or not the person was formally appointed. For instance, in a voluntary dissolution, there may be no formally appointed liquidator and the responsibility may be assumed by an auditor, director, officer, or other person. The facts of each particular case will determine whether a person is a legal representative. 4. A clearance certificate certifies that all amounts for which the taxpayer is, or can reasonably be expected to become, liable under the Act at or before the time of distribution have been paid, or that the Minister of National Revenue has accepted security for payment. The certificate applies to amounts for which you are or may become liable for payment as the legal representative. These amounts include all income taxes (including provincial and territorial taxes that we administer), along with any interest and penalties. The certificate also covers the payment of any outstanding Canada Pension Plan contributions and Employment Insurance premiums, including any associated interest and penalties. 5. If you do not get a clearance certificate before you distribute property, you are personally liable for unpaid amounts, whether assessed before or after the actual distribution of property. Your liability will not exceed the value of the property that you distributed. Interest will accrue on the amount assessed. 6. When you give up control and transfer a property to the person entitled to receive it, we consider you to have distributed the property on that date. The date on which a person acquires the right to receive a property does not determine the distribution date. Furthermore, if you appropriated the property instead of distributing it, we consider that to be a distribution.
For T2 (Corporation), we require:
10. When you receive the clearance certificate, you have to complete, as soon as possible, the actual transfer or distribution of any property over which you have control.
11. All clearance certificates will be issued on Form TX21, Clearance Certificate. We will issue a clearance certificate only when:
For an estate or trust, where the provisions of subsections 106(3), 107(4), or 107(5) apply to a distribution, and where any tax payable by the estate or trust can be determined only after the fair market value of the property to be distributed has been determined on the date of distribution, we will issue a clearance certificate as long as you do all of the following:
We may not issue a clearance certificate if you have not filed a tax return or paid an amount for which the estate or trust is liable, or if there is an indication that the actual distribution will not take place as soon as possible after we issue the clearance certificate.
Once we issue the certificate, we consider the chosen date to be the actual date of distribution for tax purposes and regard the estate or trust representative as holding the properties for the beneficiaries since that date.
Do not file Form TX19, Asking for a Clearance Certificate, until you receive the assessment notice(s). However, there may be exceptions for an estate or trust (see paragraph 12).
12. There may be times when you cannot determine the date of distribution because it may depend on completing the final assessment and issuing the clearance certificate. Since the final assessment has to include the period up to and including the date of distribution of property, it may seem we cannot issue the final assessment or the clearance certificate. For example, this situation could arise when the properties of an operating corporation continue to generate income until they are distributed. In such circumstances, you should contact your regional tax services office where you file Form TX19 (see paragraph 7) to make alternative arrangements.
13. A clearance certificate covers only the properties you controlled from the date you received control to the date you asked for the clearance certificate. After you receive a clearance certificate, you may discover another property that affects the amounts of income or capital gains you reported on the taxpayer’s tax return(s). If so, you will have to get another clearance certificate before you distribute the newly identified property. In this circumstance, you should contact your regional tax services office where you file Form TX19 (see paragraph 7).
14. For an individual, you should ask for a clearance certificate only for properties you will distribute in your capacity as a legal representative.
15. There may be situations when an estate or a trust will continue to exist to pay or allocate its income to the beneficiaries until a certain situation occurs (for example, a beneficiary reaches the age of majority). In such cases, we do not consider the payment or allocation of trust income to a beneficiary as a distribution of property. As a result, you do not need to ask for a clearance certificate.
16. Under subsection 87(2) (amalgamation), you can transfer a corporation’s assets and liabilities on a rollover basis to another corporation. If all conditions of the rollover are satisfied, the amalgamation should not create any additional tax liability. In this case, you do not need a clearance certificate. If you are not sure that the rollover is complete, you should apply for a clearance certificate. For any other type of corporate dissolution, you should get a clearance certificate before you distribute the corporate property.
17. Section 270 of the Excise Tax Act includes similar provisions for goods and services tax/harmonized sales tax (GST/HST) purposes requiring you, as a receiver or representative, to get a clearance certificate before you distribute any property or money you control. To ask for a clearance certificate, you have to complete Form GST352, Application for Clearance Certificate,and send it to your tax services office. For more information on clearance certificates related to the GST/HST, call 1-800-959-5525.