Section 270 of the Excise Tax Act (the “ETA“) requires a legal representative of an estate to apply for a GST/HST clearance certificate. This is to obtain confirmation that all outstanding GST/HST owing has been paid and satisfied prior to the final distribution of the deceased’s assets.

Indeed, if the deceased was a GST/HST registrant (as an example, was operating a sole proprietorship at the time of death) and had an obligation to collect and remit GST/HST, the executor should seek a GST/HST clearance certificate. This obligation is different from the clearance certificate that ought to be obtained under subsection 159(3) of the Income Tax Act.

If the estate legal representative fails to obtain a GST/HST clearance certificate prior to the distribution of assets and there are any outstanding GST/HST tax amounts owing under Part IX of the ETA, the Canada Revenue Agency (the “CRA“) will hold the legal representative personally liable for unpaid amounts, up to the value of the assets distributed. It is worth noting that if there are any GST/HST amounts owing, the legal representative must repay the amount immediately, regardless of whether a tax appeal is to be initiated. This can have serious immediate financial implications for the legal representative.

If there are two or more legal representatives of the estate, they would be jointly and severally liable for the GST/HST liability. As a result, each legal representative could be held liable for the full GST/HST liability of the estate. The CRA could seek full payment from one of the legal representatives and once paid, it would discharge the GST/HST liability for all legal representatives.

Form GST352

When the administration of the estate is near completed, the legal representative should file “Form GST352 – an application for clearance certificate (under section 270 of the Excise Tax Act)“. Obtaining such clearance certificate (under section 270 of the ETA) would be confirmation from the CRA that no GST/HST debts are owing by the estate. The legal representative can then confidently proceed with the distribution of the estate.

The GST/HST clearance certificate may be overlooked by estate advisors as we often focus on the Income Tax.

What If Business Is To Continue?

Adding to the legal representative’s GST/HST obligations, if the business is to continue after the death of the business owner, the legal representative must contact the CRA and change the name of the GST/HST account to “the Estate of XYZ.” The legal representative is now responsible to collect and remit the GST/HST as in the normal commercial course of business.

Further, if the business is distributed to the beneficiary(ies), the latter must also be registered for GST/HST on or before the date of the distribution of the property. There is an election that can be filed by the legal representative of the estate that would avoid GST/HST payable on the transfer of property to the beneficiary(ies).

Executors must beware of the potential GST/HST liabilities lurking around and seeking a GST/HST clearance certificate will bring peace of mind that all tax liabilities have been properly dealt with.