15 June 2022 STEP Roundtable Q. 4, 2022-0929911C6 - Death and Tax Payment over 10 Years

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.

Principal Issues: The tax payable by a deceased individual related to certain income and gains (rights and things per subsection 70(2) of the Income Tax Act, and deemed dispositions per subsections 70(5) and 70(5.2)) may be, pursuant to subsection 159(5), paid in 10 annual installments provided the taxpayer’s legal representative so elects and furnishes the Minister with security acceptable to the Minister. Can the CRA comment on what is acceptable security and what the recommended process should be to provide for such an arrangement?

Position: General comments provided.

Reasons: See response below.

2022 STEP CRA Roundtable – June 15, 2021

QUESTION 4. Death and Tax Payment over 10 Years

The tax payable by a deceased individual related to certain income and gains (rights and things per subsection 70(2) of the Income Tax Act (footnote 1) , and deemed dispositions per subsections 70(5) and 70(5.2)) may be, pursuant to subsection 159(5), paid in 10 annual installments provided the taxpayer’s legal representative so elects and furnishes the Minister with security acceptable to the Minister.

Can the CRA comment on what is acceptable security and what the recommended process should be to provide for such an arrangement?

CRA Response

The process for providing acceptable security in the situation described is initiated as outlined at the top of election form T2075 Election to Defer Payment of Income Tax, Under Subsection 159(5) of the Income Tax Act by a Deceased Taxpayer's Legal Representative or Trustee, which states:

This election is to be filed at the Tax Services Office in the area in which the taxpayer resided prior to death on or before the day on which payment for the first of the equal consecutive annual instalments is required to be made. Include a copy of this form with the return that contains the income subject to this election.

The CRA requires that Form T2075 be submitted twice - once on its own with the Tax Services Office in the area where the deceased taxpayer resided prior to death, and also attached to the tax return, which should be filed as directed in CRA publication T4011 Preparing Returns for Deceased Persons. Once filed, the election will be forwarded to a Collections Officer who will contact the legal representative of the deceased taxpayer’s estate in order to provide direction on, and facilitate the requirement to provide adequate security in fulfillment of the election.

The Collections Directorate, within the Collections and Verifications Branch of the CRA, recently revised its Information Circular IC98-IR8, Tax Collections Policies, which includes additional information on what constitutes acceptable security, and the hallmarks of acceptable security. The information and guidelines provided in the Information Circular are not meant to be exhaustive. Taxpayers or their representatives will discuss arrangements for security as part of the process for the election. For your convenience, we reproduce the relevant section of the Information Circular, which states:

Acceptable forms of security

Some types of security we may accept include bank letters of guarantee, standby letters of credit, or mortgages. Bank letters of guarantee or standby letters of credit should be provided by a Schedule I or Schedule II Canadian financial institution as defined in the Bank Act. Other forms of security can be accepted in certain circumstances. Acceptability of other forms of security is determined on a case by case basis, subject to the Minister’s discretion to accept security under subsection 220(4) of the Income Tax Act.

Acceptable security must be liquid (easily convertible to cash), equivalent or near equivalent to cash, and realizable on demand without defense or claim from third parties. Provisions under the Income Tax Act , the Excise Tax Act, the Excise Act, 2001, the Greenhouse Gas Pollution Pricing Act, the Softwood Lumber Products Export Charge Act, 2006, and the Air Travellers Security Charge Act determine when the CRA may, or must, accept security depending on your circumstances. For more information about the process to provide security for your debt, contact your collections officer. If you do not have a collections officer or cannot reach the collections officer, call us to discuss your options.

Aleksandra Bogdan
2022-092991

Response prepared by:

Greg Kristianson
Policy and Legislation Section
Collections Enforcement Division
Collections and Verification Branch

FOOTNOTES

Note to reader: Because of our system requirements, the footnotes contained in the original document are shown below instead:

1 Unless otherwise stated, all statutory references herein are to the Income Tax Act (Canada).