30 January 2003 External T.I. 2003-0182545 - Collection of taxes from an estate

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.

Principal Issues: Does the payment of income tax on behalf of the deceased person take priority over the claim of any beneficiary of the estate?

Position: Yes.

Reasons: Executor or other person have control over the estate must post security or pay taxes before any distribution of property to a beneficiary.

XXXXXXXXXX 	2003-018254
		Annemarie Humenuk
January 30, 2003

Dear XXXXXXXXXX:

Re: XXXXXXXXXX

This is in reply to your letter of January 7, 2003, in which you ask whether the executor's obligation to pay the deceased taxpayer's income tax liability takes priority over a claim made on the estate's assets by a common law partner of the deceased taxpayer.

All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended.

Paragraph 150(1)(b) requires the executor or other legal representative of a deceased person to file an income tax return on behalf of the deceased person for the year of death and to pay the amount of any outstanding income tax liability owing by the deceased out of the assets of the estate by the "balance-due day" as that term is defined in subsection 248(1).

In order to ensure the collection of income taxes that are, or may reasonably be expected to become, payable by a deceased person under the Act, subsection 159(2) requires the executor, administrator or any other person who has possession of the deceased person's property to request and obtain a clearance certificate before distributing any property under his control or in his possession. Under subsection 159(3) the person who distributes property under his control without obtaining a certificate pursuant to subsection 159(2) is personally liable for unpaid taxes, interest and penalties to the extent of the value of the property so distributed. Information Circular IC 82-6R2, Clearance Certificate, explains the Canada Custom and Revenue Agency's (the CCRA) procedures for obtaining a clearance certificate.

The Crown has the right to have its claims paid in full prior to the payment of claims by private creditors of equal degree. The Crown's right to priority over other creditors in the collection of income tax owing by a taxpayer was discussed in the cases of Lennox Industries (Canada) Ltd. v. The Queen (87 DTC 5041) and Wright v. Attorney General of Canada (88 DTC 6041). In both cases, the court recognized that in proceedings for tax collection, the Crown was standing in the place of all taxpayers and indeed for all citizens who would benefit from the spending of tax revenues. As such, the Crown was not in the same position as the other creditor and the Crown's claim had priority over other claims of equal degree. As a result, any personal liability imposed on an executor under subsection 159(3) for the taxes owing by the deceased is not affected by the circumstances under which the executor made a distribution without obtaining the required clearance certificate.

Please note that nothing in the letter should be construed as waiving or limiting the Crown's right to collect the amount of tax owing by the estate.

We trust our comments have clarified our position in this matter.

Theresa Murphy
Section Manager
for Division Director
International and Trusts Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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