Section 159

Subsection 159(1) - Person acting for another

See Also

Re City of Kitchener and Regional Assessment Commissioner for Regional Municipality of Waterloo (1978), 23 OR (2d) 190 (Ont. D. Ct.)

A property that a municipality had sold to a developer, and leased back from the developer under a net lease that provided that the property would become that of the City upon the expiration of the 20-year term of the lease, was found to belong to the municipality for purposes of the exemption in paragraph 9 of s. 3 of the Assessment Act (Ontario). Pennell J. stated (p. 192):

"It seems to me that it would have been a simple matter for the Legislature to use the expression 'owned by' or 'vested in' if it intended that the words 'belonging to' in s. 3, para. 9 be synonymous with 'absolute ownership'. The use of the word 'belong to' does not import that the whole title to the property is met, because it frequently occurs in transactions that property may 'belong to' one who has less than an unqualified title."

Words and Phrases

Subsection 159(2) - Certificate before distribution


Bougie v. The Queen, 90 DTC 6529 (FCTD)

A clearance certificate issued by the Minister in error to the executrix of an estate did not preclude the Minister from seeking to collect unpaid taxes of the estate from the beneficiaries. Although an "aveu extrajudiciare" such as the certificate could not be revoked except by proof of an error in fact on the part of its author, here the Court had been provided with such proof. In addition, the issuance of a clearance certificate to a responsible representative such as an executrix did not free the estate of its obligations under the Act, but merely protected the executrix in her capacity as such.

Parsons v. MNR, 83 DTC 5329, [1983] CTC 321 (FCTD), rev'd 84 DTC 6345, [1983] CTC 352 (FCA)

rev'd on other grounds, 84 DTC 6345, [1983] CTC 352 (FCA)

Directors who declared (and had the corporation pay) a dividend after the corporation had received a "nil" assessment but before a substantial reassessment was received in respect of the same taxation years were not personally liable for the reassessed taxes because: (1) as no taxes had been assessed at the time of payment of the dividend, there were no "unpaid taxes" at that time (s.159(3)); (2) as a matter of corporate law the property which was later distributed by way of dividend was under the control of the corporation, not the individual directors (s.159(2)); (3) the Act, in effect, may be defectively drafted in that there is no provision making taxes "chargeable against" or a lien upon the taxpayer's property; and (4) a director is not a "like person" to the other persons listed in s. 159(2).

Malka v. The Queen, 78 DTC 6144, [1978] CTC 219 (FCTD)

de facto liquidator

The taxpayer, who was a shareholder, director and officer of a company, distributed all the assets of the company to its shareholders without obtaining a certificate and accordingly contravened what then was s. 52. "It is precisely the de facto liquidators that are the main target of s. 52(2) and s. 52(3) as they are the ones that can be the less prone to ask for a certificate."

See Also

Commissioner of Taxation v. Australian Building Systems Pty Ltd (In Liquidation), [2015] HCA 48

taxes not due until assessed

On 6 April2011, the creditors of Australian Building Systems Pty Ltd. ("ABS") resolved that it be wound up. On 21 July 2011, the liquidators caused ABS to sell real property giving rise to a capital gain of $1,120,000. S. 254(1)(d) of the Income Tax Assessment Act 1936 (Cth) (the "1936 Act") requires every agent and every trustee "to retain from time to time out of any money which comes to him or her in his or her representative capacity so much as is sufficient to pay tax which is or will become due in respect of the income, profits or gains." In determining that the liquidators had no retention obligation before the making of an assessment or deemed assessment in respect of the capital gain, French CJ and Kiefel J stated (at para. 30):

An understanding of the term "tax which is or will become due" in s 254(1)(d) as referring to tax which has been assessed and is or will become payable, is… consistent with an established interpretation of the word "due" as used in the 1936 Act.

Words and Phrases

Nguyen v. The Queen, 2011 DTC 1059 [at 324], 2010 TCC 503

The taxpayers deposited the proceeds from two life insurance policies (which were payable to designated beneficiaries rather than to the estate) into an account in the estate's name. Angers J. found at para. 41 that this labeling of the account was a mistake and that the money deposited to the account was not part of the estate. The taxpayers therefore could not be liable under s. 159(2) for withdrawing from the account without obtaining a certificate.

Angers J. also noted at para. 45 that the taxpayers were not the "legal representatives" of the father:

The mere fact that they acknowledged being the liquidators of the succession is not sufficient in itself for me to conclude otherwise, given that the evidence as a whole satisfies me that the two appellants in question did not seem to understand the meaning of the expression [TRANSLATION] "liquidator of the succession" or the roles and responsibilities associated with it, and their testimony did not satisfy me that they actually acted in that capacity.

Sous-Ministre du Revenu c. Morganti, [1997] R.J.Q. 348 (C.A.)

After a corporation had defaulted under a bank loan secured by a commercial pledge, the bank obtained a seizure before judgment on the pledged property. The directors, including the taxpayer, were named guardians of the property on behalf of the bank. Instead of holding an auction, as required by the Civil Code, the bank authorized the corporation to sell the equipment at a price approved by the bank. The corporation remitted the proceeds of such sales to the bank without requesting a clearance certificate.

The taxpayer was liable under s. 14 of the Ministère du Revenu Act. After finding that s. 14 required both a liquidation and distribution in order to apply, Biron J.A. noted (at p. 352) that "un administrateur pose un geste de liquidation lorsqu'il vide une société de ses actifs. Il fait une distribution lorsqu'il remet aux créanciers le produit de réalisation". A submission that the taxpayer had not distributed the equipment because he was acting as mandatary for the bank was rejected, because the object of a mandate cannot be contrary to law; and it was also found (at p. 353) that "la Corporation, par ses administrateurs, avait le contrôle des biens".

Pâquet v. MNR, 92 DTC 2151 (TCC)

The appellant was the sole director of a corporation which sold its business assets, paid a dividend to the taxpayer and loaned a substantial portion of the balance of its assets to another corporation which later became bankrupt. Lamarre Proulx J. found, in light of the facts that the corporation was solvent at the time it paid the dividend and it expected the recipient of the loan to be successful, that the dividend and loan did not relate to a liquidation of the corporation and that, therefore, the appellant was not a "liquidator" as contended by the Minister.

Dauphin Plains Credit Union Ltd. v. Xyloid Industries Ltd., 80 DTC 6123, [1980] CTC 247, [1980] 1 S.C.R. 1182

Pigeon J found (at p. 6130) that "the word 'liquidation' [has] its wide meaning in usual language," so that it included a dsitribution of all the assets of an insolvent company by a court-appointed receiver.

Administrative Policy

30 May 2018 External T.I. 2017-0717981E5 - Clearance certificate for a non-resident

executors of non-resident estates that could have Canadian tax liabilities to apply for a clearance certificate

A former resident of Canada (and after her death, her non-resident estate, which had exclusively non-resident beneficiaries) received CPP, interest and RRSP/RRIF payments from Canadian sources. Would CRA issue a clearance certificate to the non-resident estate pursuant to a (Form TX19) request, and would the non-resident estate be required to apply for one? CRA responded:

Subsection 159(2) requires a legal representative to obtain a clearance certificate before distributing property that he or she controls in their capacity as legal representative. If the legal representative does not obtain a clearance certificate before distributing property in his or her control, he or she may be personally liable for unpaid amounts owing to the CRA, whether assessed before or after the actual distribution of property. Where a deceased non-resident individual was a previous resident of Canada obtaining a clearance certificate for the estate would serve to ensure there is no outstanding tax liabilities of the deceased. Accordingly, it is recommended that the legal representative obtain a clearance certificate.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 116 - Subsection 116(3) non-resident beneficiaries whose capital interests are TCP are required to apply for certificate 93

May 2017 CPA Alberta Roundtable, ITA Q.7

clearance certificate issued to one representative/can be issued before a corporate dissolution

What is the process for multiple representatives (e.g., executors or corporate directors) to each receive a clearance certificate, as required by s. 159(2)? What should directors do when a corporation in the process of winding up distributes all or a significant portion of its assets? CRA responded:

[T]he clearance certificate is issued to the person whose name first appears on the request at the legal representative’s address. The certificate will include the additional names of legal representatives on the certificate. If more than one address is provided, we send a copy of the certificate to the other addresses.

There is no requirement for a corporation to be dissolved prior to the request of a clearance certificate. The CRA can issue a partial clearance certificate if the articles of dissolution are pending closure or we believe the intent is to dissolve the corporation.

No response was given to the suggestion that corporate directors are not legal representatives during the corporation’s existence.

7 October 2016 APFF Financial Strategies and Financial Instruments Roundtable Q. 7, 2016-0651751C6 F - Recovery Tax of Qualified Disability Trust

potential liability of QDT trustee for s. 122(1)(c) recovery tax

A testator created a trust for the benefit of his mentally incapacitated son, with the trustees accorded the discretion to distribute income and encroach on capital. At the time of the beneficiary’s death, the trust holds a sum which it would be reasonable to consider had not become payable or been distributed out of the taxable income of the trust for a previous taxation year.

CRA confirmed that where the disabled beneficiary of a qualified disability trust dies during a year, this will result (in addition presumably to the QDT not qualifying as such in the year of death) in the imposition of “recovery” tax under s. 122(1)(c), based on the top marginal rate, on any undistributed income from previous years still in the hands of the trust at the time of the beneficiary’s death. In responding to the question, would the trustee of trust be personally liable for this tax, CRA responded:

If the legal representative proceeds with a distribution of property in his or her possession or control without obtaining a certificate under subsection 159(2), the legal representative could be personally liable for these amounts, up to the value of the property distributed. This rule is provided in subsection 159(3).

In the situation provided, the trustee of the QDT, in his or her capacity of legal representative as defined in subsection 248(1), is therefore subject to the above rules, and could be solidarily liable with the trust for the payment of the taxes imposed under paragraph 122(1)(c).

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 122 - Subsection 122(2) recovery tax applies to undistributed income in a QDT at the time of the disabled beneficiary’s death 205
Tax Topics - Income Tax Act - Section 122 - Subsection 122(3) - qualified disability trust s. 122(1)(c) liability in year of death of disabled beneficiary 53

3 May 2016 CALU Roundtable Q. 5, 2016-0632641C6 - Clearance certificate & GRE rules

CRA will issue a clearance certificate for a partial estate distribution

While a graduated rate estate may allocate a charitable donation tax credit within 60 months from the individual’s date of death in cases where GRE status is lost solely because of the expiry of the 36-month period, the gift nonetheless may need to be made within 36 months of death. If a GRE requires a clearance certificate before it can complete a gift to a qualified donee, is there any assurance that it will be provided to meet the 36 month limitation period to complete the gift? CRA responded:

The overall process to receive a clearance certificate is currently under review. … One avenue that can be pursued by legal representatives is the request of a clearance certificate for partial distribution. This type of certificate is issued to the executor or the administrator of an estate for partial distribution of estate assets. The process to request a partial clearance certificate is the same as with other types of clearance certificate requests.

8 August 2014 Internal T.I. 2014-0524971I7 - Distributing Estate Property When Estate is Liable

s. 159 applies to distribution of RESP

An estate's property consists solely of a registered education savings plan ("RESP"), which had been transferred to the estate for distribution to the estate's beneficiary. Could the executor distribute this property without paying the estate's income tax liability? The Directorate stated:

[I]f the executor distributes the property in the RESP without first obtaining a clearance certificate, subsection 159(3) would hold the executor personally liable for the payment of the tax liability, to the extent of the value of the funds in the RESP.

May 2013 ICAA Roundtable, Q. 6 (reported in April 2014 Member Advisory)

service standard

CRA was referred to the huge variability in the times for dealing with and processing clearance certificate "including one file which has been on-going for eighteen months with no sign of any progress," and then was asked: "What are the current wait times for issuance of the Clearance Certificates?" CRA responded:

The service standard for Clearance Certificates (CC) is to address 80% of CC requests within 120 days. If there are audit issues, the processing of the Clearance Certificate may take more than 120 days. Audit issues may require more time as those situations depend on the cooperation of the taxpayers and their representatives and on the complexity of the issue, which may result in the involvement of other CRA program areas such as the Business Equity Valuation and/or the Real Estate Appraisals. …

The CRA is currently working on streamlining the process to expedite the processing of these requests by improving internal efficiencies….

27 March 2013 Internal T.I. 2012-0457251I7 - Appn of 159 to executor who distributes property

no effect on secured creditors' priority

Respecting whether ss. 159(2) and (3) apply to an executor who distributes property in order to satisfy (a) a debt owed to a credit card company; and (b) a mortgage that was not registered in a public property registry system, CRA noted the requirement for the executor to obtain a clearance certificate or post security, before distributing property which was under his or her control, and then stated:

The operation of subsections 159(2) and (3) is not intended to give to the Crown a priority that it would not have otherwise. For instance, if a creditor has a secured claim, an income tax claim would not have priority over the secured claim because it is ranked as an unsecured claim (unless the Minister complies with subsections 223(11.1) of the Act and 87(1) of the Bankruptcy and Insolvency Act, in which case it is deemed to be a secured claim). On the other hand, in Ontario, if an income tax claim is of equal degree with that of a claim of another creditor, the tax claim would prevail: see Mary Constance Wright v. Canada, 86 D.T.C. 6574 (Ont. Dist. Ct.); reversed on other grounds in [1988] 1 C.T.C. 107, 88 D.T.C. 6041 (Ont. Div. Ct.). Given that a credit card debt is also an unsecured claim, an income tax claim would have priority. ...

In relation to whether the Minister can invoke subsection 159(3) against an executor for an amount distributed to a mortgagee who has not registered the mortgage in a public property registry, the position is less certain. ...

11 October 2012 External T.I. 2012-0432861E5 - Clearance certificate under 159(2)

A partnership "could" be a "taxpayer" for the purpose of s. 159(2) so that a general partner of a limited partnership, viewed as a legal representative of that taxpayer, "would" be required to apply for a certificate under s. 159(2) in connection with a winding-up of the partnership.

For example, a clearance certificate under subsection 159(2) would be required to ensure that all source deductions have been remitted before the partnership is wound-up.

However, no certification would be required "that each limited partner has paid all income tax owing on partnership income allocated to that limited partner."

14 March 2011 External T.I. 2010-0390311E5 - Section 159 of the Income Tax Act

Where a taxpayer dies with a tax debt larger than the value of his estate, the administrator would be at risk of an assessment under s. 159(3) if he paid for the services to the estate of an accountant without first obtaining a clearance certificate.

10 January 1996 External T.I. 5-960088 -

de facto liquidator

"A person may be found to be a de facto liquidator, notwithstanding the fact that the formalities of a liquidation under corporate law have not been carried out (see Charles Malka, David Malka v. Her Majesty The Queen (FCTD) 78 DTC 6144)."

7 May 1991 Memorandum (Tax Window, No. 3, p. 29, ¶1249)

Although there is no authority under the Act for RC to assess a dissolved corporation, the governing corporate law may permit action to be taken against the shareholders for unpaid taxes.

28 March 1991 Memorandum (Tax Window, No. 2, p. 2, ¶1222)

A general partner is a "like person", and will be liable for the payment of income taxes owing by any partner if he distributes property of the partnership without a clearance certificate.

IT-368 "Corporate Distributions - Clearance Certificates"


Sklar, "Clearance Certificates Required Before Paying Off Creditors?", Willpower No. 32, 28 August 1997, p. 1.

Wertschek, "The Tax Advisor and Commercial Law: Some Issues", 1993 Conference Report, pp. 22-24: Discussion of potential shareholder liability following a dissolution.

Subsection 159(3) - Personal liability


The Queen v. Westbrook Management Ltd., 96 DTC 6590 (FCA)

A subsidiary of the taxpayer, which had received a nil assessment and nil reassessment by the Minister for the taxation year in question, was wound-up by the taxpayer without a clearance certificate and then restored following the end of the normal reassessment upon an application of the Minister. In finding that the taxpayer was not liable under s. 159(3), Hugessen J.A. noted that because an assessment, once issued, fixes the liability for tax unless varied, the existing nil assessments bound the Minister.

Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 152 - Subsection 152(8) 107

Boger Estate v. MNR, 91 DTC 5506 (FCTD)

After finding against the Minister on other grounds, Joyal J. accepted the Crown's submission that the fact that a clearance certificate has been issued to the executor of an estate does not free the estate from its liability under the Act.

Locations of other summaries Wordcount
Tax Topics - Statutory Interpretation - Provincial Law 25

See Also

Groscki v. The Queen, 2017 TCC 249 (Informal Procedure)

a director was not liable for failure to obtain a s. 159(2) certificate before his corporation disposed of most of its assets

The appellant was the director of a Macao corporation (EMI Macao) that following an adverse ITA amendment disposed of all its inventory, that had been earmarked for “buy low, donate high” charitable donation programs, without obtaining a s. 159(2) clearance certificate. In finding that the appellant was not a “legal representative” and was not liable under s. 159(3), Bocock J first noted (at para. 53) that:

[T]he specific term “director” does not appear in the definition section of legal representative.

After indicating (at para. 60) that the facts in Malka entailed a liquidation process, he noted that here, in contrast (paras. 62, 63, 65, and 66):

A “dissolution and liquidation” was not directed by Mr. Groscki. There was scant evidence of corporate authority for Mr. Groscki to undertake such actions qua “liquidator” “receiver of any kind” or “or other like person”. …

What occurred was a revocation, it would appear on an unsolicited and unobserved basis, of the company’s territorial licence to operate in Macao. The company was not legally dissolved, struck, wound up or rendered functus by the jurisdiction which created it or by its own director acting under resolved corporate action. ...

Additionally, on balance, there was no evidence of “liquidation”. …In effect, the existing business and inventory became stranded and almost valueless because of hugely impactful legislative change. …

Further, there was no authority for Mr. Groscki to act as liquidator. … Some instrument or action must award or grant some authority or at least “colour of right” to “administer assets” in the course of a dissolution, winding up and/or liquidation. …

He went on to find (at para. 70) that, even if the appellant had been a legal representative, he was not in “possession and control” of EMI Macao’s property, stating that such control was instead in the hands of a related distributor corporation.

Words and Phrases
Locations of other summaries Wordcount
Tax Topics - Income Tax Act - Section 248 - Subsection 248(1) - Legal Representative director without liquidator authorization was not legal representative 84
Tax Topics - Income Tax Act - Section 20 - Subsection 20(1) - Paragraph 20(1)(p) - Subparagraph 20(1)(p)(ii) reporting of bad debt deduction on “net” basis not permitted/specifically-evidenced claims required 288

RMM Canadian Enterprises Inc. v. The Queen, 97 DTC 302, [1998] 1 C.T.C. 2300 (TCC)

A non-resident corporation ("EC") approached a business associate who, along with two other individuals, formed a Canadian corporation ("RMM") to buy the shares of a Canadian subsidiary ("EL") of EC for a cash purchase price approximating the cash and near cash on hand of EL and a Canadian subsidiary of EL ("ECL"). Immediately following the purchase, EL was wound-up into RMM and ECL was amalgamated with RMM; and three or four days later, RMM used the cash received by it from EL and ECL to pay off a loan that had financed the acquisition.

In finding that RMM was a "responsible representative", Bowman TCJ. indicated that the words "any other like person" were presumably ejusdem generis with the words preceding them and that if one proceeded from the footing that RMM was no more than a conduit through which EL's funds flowed on the winding-up and liquidation of its business, it followed that it was a "like person" to a liquidator.

Administrative Policy

14 September 2016 External T.I. 2016-0638171E5 - Liability under section 159

has potential personal liability for the maximum value of the property under its control from the moment that the taxpayer’s tax debt was assessed

The “Trustee” of a trust holds a portfolio of securities whose fair market value is $125,000 on December 31, 2014. The 2014 return of the sole beneficiary of the trust (the “Taxpayer”) was assessed on April 30, 2015, showing an unpaid amount of $150,000, at which time the FMV of the portfolio was $100,000. On January 1, 2016, a demand to pay was issued to the Trustee, the Trustee liquidated the portfolio and applied the net proceeds of $70,000 (reflecting market declines) towards the demand to pay. Is the Trustee’s liability under s. 159(1) limited to the proceeds received on the arm’s length sale of such property? In responding negatively, CRA stated:

[A] legal representative’s liability…can commence at any time a taxpayer has an amount owing under the Act that remains unpaid. …

[S]ince the Taxpayer has an amount payable of $150,000 established on April 30, 2015, that remains unpaid, the Trustee is jointly and severally… liable with the Taxpayer, to pay the amount owing by the Taxpayer at that time. Moreover, the Trustee remains…[so] liable with the taxpayer at the time when the Minister makes a demand on the Trustee for payment (i.e., January 1, 2016) and any other time the amount owing by the Taxpayer remains unpaid while the Trustee remains the taxpayer’s legal representative. …

Furthermore…the Trustee’s liability is restricted to the property in the trust…notwithstanding that between the time the taxpayer’s liability arose on April 30, 2015 and the time the Trustee liquidated the Portfolio in satisfaction of the demand to pay on January 7, 2016, the value of such property declined in value from $100,000 to $70,000.

Words and Phrases

31 March 2014 External T.I. 2013-0513191E5 - Director/Executor liability

circumscribed liability of executor for corporate tax liabilities

What is the potential liability of the executor of an estate where the deceased was the sole shareholder and director of an inactive corporation which CRA records shows owes money from a GST and payroll trust account? After noting that "there is no direct legal obligation under the Act for the executor to file a T2 on behalf of the corporation of which the deceased person was the director and sole shareholder" and that "the deceased taxpayer could be liable as a director of the corporation under section 227.1 of the Act or section 323 of the Excise Tax Act," CRA stated:

If the deceased taxpayer has a tax liability, including any that arose from his capacity as a director as described above, and the CRA issues an assessment to that effect, the executor would have the same rights to object that the deceased taxpayer would otherwise have had. … Finally, before making any distributions from the estate, the executor is required to obtain a clearance certificate, pursuant to subsection 159(2)… .

Subsection 159(6.1) - Election where subsection 104(4) applicable

Administrative Policy

29 July 2015 External T.I. 2015-0594201E5 - Election under 159(6.1)

election available for s. 104(5.2) deemed dispositions of resource properties

Is the s. 159(6.1) election available for a tax liability arising from a deemed disposition of resource property under s. 104(5.2)? CRA responded:

Subsection 104(5.2)… provides that each Canadian resource property and foreign resource property of a trust is treated, for specified purposes, as having been disposed of immediately before the end of a day determined under subsection 104(4), i.e., as indicated in paragraphs 104(4)(a) [to] (c).

Since subsection 159(6.1) specifically refers to tax liability arising on the occurrence of a time determined under paragraph 104(4)(a), (a.1), (a.2), (a.3), (a.4), (b) or (c) which is the time when a deemed disposition pursuant to subsection 104(5.2) occurs, an election under subsection 159(6.1) is possible in respect of tax liability arising from the disposition of property pursuant to subsection 104(5.2) of the Act.