New this year, the Canada Revenue Agency (“CRA”) put into place a random audit request for Estate Trustees to provide information to the CRA prior to issuing a requested clearance certificate. If the Estate has been chosen to provide further information to the CRA prior to the issuing of the clearance certificate, the Estate Trustee has 30 days from the date of the request to send this information. Failing to do so may result in the request for the clearance certificate being rejected.
Under the audit, the CRA is asking for a list of assets, liabilities and the proposed distribution of the Estate. For convenience, it has enclosed a form that can be completed and submitted. The CRA also asks whether Trustee and/or Executor fees will be paid or are payable. If the Trustee and/or Executor claims fees, the CRA requires the Estate to provide a statement that includes the name(s), address(es), social insurance number(s) of the Trustee/Executor and amount(s) of compensation for each applicable year.
Trustee and/or Executor compensation is treated as taxable income by CRA. If the Trustee and/or Executor is an individual and does not include the compensation as business income, it is treated as income from an office of employment.
This audit process gives the CRA additional tools to ensure that all income taxes owed from third parties, such as beneficiaries of the Estate, or the Trustee and/or Executor, are paid. These additional taxes are not issues of the Estate, and should not hold up the issuance of the clearance certificate. This provides the CRA information on who they should be contacting to deal with any potential outstanding taxes owed from the third parties.
If you have any questions about these changes, please contact our Wills and Estates group who would be pleased to clarify them for you.