If you are an executor of an estate that owes income tax and you distribute funds without first getting a clearance certificate from the Canada Revenue Agency (“CRA”), then you could be held liable for those unpaid taxes. This also applies if you are not the legal executor but you do anything that an executor would normally do. In such a case the CRA will deem you to be what is called a “de facto” executor.
In the recent case of Mingle v The Queen, 2022 TCC 34, the Tax Court of Canada rejected a taxpayer’s submissions that he had renounced his executorship shortly after being appointed and therefore he should not have been assess for unpaid estate taxes for failing to obtain a clearance certificate. The Trial Judge stated:
“If Mr. Mingle was a trustee de son sort (i.e. a person who is not appointed as a trustee but whose course of conduct suggests that he be treated as one) , I believe that for income tax purposes, he would still have fallen within the definition of “legal representative” which encompasses “any other like person…dealing in a representative or fiduciary capacity with the property.”
click here to read the full judgement
The “de facto” doctrine has also been applied in director’s liability cases in the case of taxes owed by a corporation.
One should be mindful of the potential liability of “de facto” representives and be sure to get a clearance certificate before distributing any property.