2017-0717981E5 Clearance certificate for a non-resident

Principal Issues: Non-resident estate distributing assets to non-resident beneficiaries....Is a clearance certificate required?

Position: General comments given-- different requirements depend upon the nature of the property being distributed.

Reasons: Given that the distribution of assets is a disposition of the non-resident beneficiaries capital interest in the trust, if the capital interest meets the definition of taxable Canadian property then subsection 116(1) must be complied with. Where the deceased was a former resident it is advisable for the legal representative to obtain a clearance certificate.

Author: Holloway, Lena
Section: 116(1); 159(2); 248(1)

XXXXXXXXXX                            L. Holloway, CPA CA
                                2017-071798
May 30, 2018

Dear Madam:

Re:    Technical Interpretation – Clearance Certificate

This is in reply to your email of August 09, 2017 in which you requested a technical interpretation on the requirement to request a clearance certificate from the Canada Revenue Agency (“CRA”) when distributing assets from an estate.  In particular you presented a situation whereby an estate, a non-resident of Canada, is one of your clients. You stated that neither the deceased nor the executor are residents of Canada for tax purposes. It was also your understanding that none of the beneficiaries are residents of Canada for tax purposes.

The deceased did live and work in Canada for a number of years, but many years before she died.

While non-resident, she and/or her estate received CPP payments, interest income and RRSP/RRIF payments.  It was also your understanding that all required non-resident tax was withheld at source.

Given the above scenario, you had asked:

i)    if the CRA would issue a clearance certificate to the non-resident estate if the request (Form TX19) were filed; and

ii)    if the non-resident estate was required to apply for a clearance certificate (TX19) or compliance certificate (T2062) in this situation.

Your correspondence relates to a factual situation, involving a specific taxpayer.  Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R7, Advance Income Tax Rulings and Technical Interpretations, dated April 22, 2016.  Given that your enquiries are primarily administrative in nature we are, however, prepared to offer the following general comments, which may be of assistance.

Every reference herein to a part, section or subsection, paragraph or subparagraph and clause or subclause is a reference to the relevant provision of the Income Tax Act (Canada), R.S.C. 1985, c.1 (5th Supp.), as amended from time to time and consolidated to the date of this letter (the “Act’) and each reference to a technical tax term has the same meaning as such term has in the Act.

Our Comments

Where a trust distributes assets in satisfaction of a non-resident beneficiary’s capital interest in the trust, the beneficiary is considered to have disposed of that interest.  The disposition of the capital interest will be considered to be a disposition of taxable Canadian property as defined in subsection 248(1) pursuant to paragraph (d), where the trust is not a mutual fund trust, if, at any particular time during the 60-month period that ends at that time, more than 50% of the fair market value of the interest was derived directly or indirectly (otherwise than through a corporation, partnership or trust the shares or interests in which were not themselves taxable Canadian property at the particular time) from one or any combination of

(i) real or immovable property situated in Canada,

(ii) Canadian resource properties,

(iii) timber resource properties, and

(iv) options in respect of, or interests in, or for civil law rights in, property described in any of (i) to (iii) above, whether or not the property exists.

Generally, subsection 116(1) provides that if a non-resident person proposes to dispose of taxable Canadian property, the non-resident person may at any time before the disposition, send the Minister a notice setting out certain information with respect to the purchaser of the property, the property, the estimated proceeds of disposition and the adjusted cost base of the property. This is done by completing form T2062 Request by a Non-Resident of Canada for a Certificate of Compliance Related to the Disposition of Taxable Canadian Property. Where the non-resident person has not provided a notice under subsection 116(1), subsection 116(3) of the Act requires that upon the disposition of the taxable Canadian property the non-resident person must, within 10 days of the date of the disposition, send the Minister a notice setting out certain information with respect to the disposition. Again, this is done by completing form T2062. Where neither the property being distributed to the non-resident beneficiary nor the capital interest in the trust meets the definition of taxable Canadian property, there are no compliance obligations under section 116 for either the trust or the non-resident beneficiary.

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.  This can be done by completing form TX19, Asking for a Clearance Certificate, and sending it to the Sudbury Tax Services Office.

For further information on clearance certificates please refer to Information Circular IC82-6R12 Clearance Certificate.

Yours truly, 

Phillip Kohnen
for Director
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch 

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