Subsection 159(1) - Person acting for another
See Also
Re City of Kitchener and Regional Assessment Commissioner for Regional Municipality of Waterloo (1978), 23 OR (2d) 190 (Ont. D. Ct.)
A property that a municipality had sold to a developer, and leased back from the developer under a net lease that provided that the property would become that of the City upon the expiration of the 20-year term of the lease, was found to belong to the municipality for purposes of the exemption in paragraph 9 of s. 3 of the Assessment Act (Ontario). Pennell J. stated (p. 192):
"It seems to me that it would have been a simple matter for the Legislature to use the expression 'owned by' or 'vested in' if it intended that the words 'belonging to' in s. 3, para. 9 be synonymous with 'absolute ownership'. The use of the word 'belong to' does not import that the whole title to the property is met, because it frequently occurs in transactions that property may 'belong to' one who has less than an unqualified title."
Subsection 159(2) - Certificate before distribution
Cases
Bougie v. The Queen, 90 DTC 6529 (FCTD)
A clearance certificate issued by the Minister in error to the executrix of an estate did not preclude the Minister from seeking to collect unpaid taxes of the estate from the beneficiaries. Although an "aveu extrajudiciare" such as the certificate could not be revoked except by proof of an error in fact on the part of its author, here the Court had been provided with such proof. In addition, the issuance of a clearance certificate to a responsible representative such as an executrix did not free the estate of its obligations under the Act, but merely protected the executrix in her capacity as such.
Parsons v. MNR, 83 DTC 5329, [1983] CTC 321 (FCTD), rev'd 84 DTC 6345, [1983] CTC 352 (FCA)
Directors who declared (and had the corporation pay) a dividend after the corporation had received a "nil" assessment but before a substantial reassessment was received in respect of the same taxation years were not personally liable for the reassessed taxes because: (1) as no taxes had been assessed at the time of payment of the dividend, there were no "unpaid taxes" at that time (s.159(3)); (2) as a matter of corporate law the property which was later distributed by way of dividend was under the control of the corporation, not the individual directors (s.159(2)); (3) the Act, in effect, may be defectively drafted in that there is no provision making taxes "chargeable against" or a lien upon the taxpayer's property; and (4) a director is not a "like person" to the other persons listed in s. 159(2).
Malka v. The Queen, 78 DTC 6144, [1978] CTC 219 (FCTD)
The taxpayer, who was a shareholder, director and officer of a company, distributed all the assets of the company to its shareholders without obtaining a certificate and accordingly contravened what then was s. 52. "It is precisely the de facto liquidators that are the main target of s. 52(2) and s. 52(3) as they are the ones that can be the less prone to ask for a certificate."
See Also
Nguyen v. The Queen, 2011 DTC 1059 [at 324], 2010 TCC 503
The taxpayers deposited the proceeds from two life insurance policies (which were payable to designated beneficiaries rather than to the estate) into an account in the estate's name. Angers J. found at para. 41 that this labeling of the account was a mistake and that the money deposited to the account was not part of the estate. The taxpayers therefore could not be liable under s. 159(2) for withdrawing from the account without obtaining a certificate.
Angers J. also noted at para. 45 that the taxpayers were not the "legal representatives" of the father:
The mere fact that they acknowledged being the liquidators of the succession is not sufficient in itself for me to conclude otherwise, given that the evidence as a whole satisfies me that the two appellants in question did not seem to understand the meaning of the expression [TRANSLATION] "liquidator of the succession" or the roles and responsibilities associated with it, and their testimony did not satisfy me that they actually acted in that capacity.
Sous-Ministre du Revenu c. Morganti, [1997] R.J.Q. 348 (C.A.)
After a corporation had defaulted under a bank loan secured by a commercial pledge, the bank obtained a seizure before judgment on the pledged property. The directors, including the taxpayer, were named guardians of the property on behalf of the bank. Instead of holding an auction, as required by the Civil Code, the bank authorized the corporation to sell the equipment at a price approved by the bank. The corporation remitted the proceeds of such sales to the bank without requesting a clearance certificate.
The taxpayer was liable under s. 14 of the Ministère du Revenu Act. After finding that s. 14 required both a liquidation and distribution in order to apply, Biron J.A. noted (at p. 352) that "un administrateur pose un geste de liquidation lorsqu'il vide une société de ses actifs. Il fait une distribution lorsqu'il remet aux créanciers le produit de réalisation". A submission that the taxpayer had not distributed the equipment because he was acting as mandatary for the bank was rejected, because the object of a mandate cannot be contrary to law; and it was also found (at p. 353) that "la Corporation, par ses administrateurs, avait le contrôle des biens".
Pâquet v. MNR, 92 DTC 2151 (TCC)
The appellant was the sole director of a corporation which sold its business assets, paid a dividend to the taxpayer and loaned a substantial portion of the balance of its assets to another corporation which later became bankrupt. Lamarre Proulx J. found, in light of the facts that the corporation was solvent at the time it paid the dividend and it expected the recipient of the loan to be successful, that the dividend and loan did not relate to a liquidation of the corporation and that, therefore, the appellant was not a "liquidator" as contended by the Minister.
Dauphin Plains Credit Union Ltd. v. The Queen, 80 DTC 6123, [1980] CTC 247, [1980] 1 S.C.R. 1182
It was found that "the word 'liquidation' [has] its wide meaning in usual language."
Administrative Policy
8 August 2014 Memorandum 2014-0524971I7 - Distributing Estate Property When Estate is Liable
An estate's property consists solely of a registered education savings plan ("RESP"), which had been transferred to the estate for distribution to the estate's beneficiary. Could the executor distribute this property without paying the estate's income tax liability? The Directorate stated:
[I]f the executor distributes the property in the RESP without first obtaining a clearance certificate, subsection 159(3) would hold the executor personally liable for the payment of the tax liability, to the extent of the value of the funds in the RESP.
May 2013 ICAA Roundtable, Q. 6 (reported in April 2014 Member Advisory)
CRA was referred to the huge variability in the times for dealing with and processing clearance certificate "including one file which has been on-going for eighteen months with no sign of any progress," and then was asked: "What are the current wait times for issuance of the Clearance Certificates?" CRA responded:
The service standard for Clearance Certificates (CC) is to address 80% of CC requests within 120 days. If there are audit issues, the processing of the Clearance Certificate may take more than 120 days. Audit issues may require more time as those situations depend on the cooperation of the taxpayers and their representatives and on the complexity of the issue, which may result in the involvement of other CRA program areas such as the Business Equity Valuation and/or the Real Estate Appraisals. …
The CRA is currently working on streamlining the process to expedite the processing of these requests by improving internal efficiencies….
27 March 2013 Memorandum 2012-0457251I7 - Appn of 159 to executor who distributes property
Respecting whether ss. 159(2) and (3) apply to an executor who distributes property in order to satisfy (a) a debt owed to a credit card company; and (b) a mortgage that was not registered in a public property registry system, CRA noted the requirement for the executor to obtain a clearance certificate or post security, before distributing property which was under his or her control, and then stated:
The operation of subsections 159(2) and (3) is not intended to give to the Crown a priority that it would not have otherwise. For instance, if a creditor has a secured claim, an income tax claim would not have priority over the secured claim because it is ranked as an unsecured claim (unless the Minister complies with subsections 223(11.1) of the Act and 87(1) of the Bankruptcy and Insolvency Act, in which case it is deemed to be a secured claim). On the other hand, in Ontario, if an income tax claim is of equal degree with that of a claim of another creditor, the tax claim would prevail: see Mary Constance Wright v. Canada, 86 D.T.C. 6574 (Ont. Dist. Ct.); reversed on other grounds in [1988] 1 C.T.C. 107, 88 D.T.C. 6041 (Ont. Div. Ct.). Given that a credit card debt is also an unsecured claim, an income tax claim would have priority. ...
In relation to whether the Minister can invoke subsection 159(3) against an executor for an amount distributed to a mortgagee who has not registered the mortgage in a public property registry, the position is less certain. ...
11 October 2012 T.I. 2012-0432861E5 - Clearance certificate under 159(2)
A partnership "could" be a "taxpayer" for the purpose of s. 159(2) so that a general partner of a limited partnership, viewed as a legal representative of that taxpayer, "would" be required to apply for a certificate under s. 159(2) in connection with a winding-up of the partnership.
For example, a clearance certificate under subsection 159(2) would be required to ensure that all source deductions have been remitted before the partnership is wound-up.
However, no certification would be required "that each limited partner has paid all income tax owing on partnership income allocated to that limited partner."
15 March 2011 T.I. 2010-039031
Where a taxpayer dies with a tax debt larger than the value of his estate, the administrator would be at risk of an assessment under s. 159(3) if he paid for the services to the estate of an accountant without first obtaining a clearance certificate.
10 January 1996 T.I. 5-960088 -
"A person may be found to be a de facto liquidator, notwithstanding the fact that the formalities of a liquidation under corporate law have not been carried out (see Charles Malka, David Malka v. Her Majesty The Queen (FCTD) 78 DTC 6144)."
7 May 1991 Memorandum (Tax Window, No. 3, p. 29, ¶1249)
Although there is no authority under the Act for RC to assess a dissolved corporation, the governing corporate law may permit action to be taken against the shareholders for unpaid taxes.
28 March 1991 Memorandum (Tax Window, No. 2, p. 2, ¶1222)
A general partner is a "like person", and will be liable for the payment of income taxes owing by any partner if he distributes property of the partnership without a clearance certificate.
IT-368 "Corporate Distributions - Clearance Certificates"
Articles
Sklar, "Clearance Certificates Required Before Paying Off Creditors?", Willpower No. 32, 28 August 1997, p. 1.
Wertschek, "The Tax Advisor and Commercial Law: Some Issues", 1993 Conference Report, pp. 22-24: Discussion of potential shareholder liability following a dissolution.
Subsection 159(3) - Personal liability
Cases
RMM Canadian Enterprises Inc. v. The Queen, 97 DTC 302, [1998] 1 C.T.C. 2300 (TCC)
A non-resident corporation ("EC") approached a business associate who, along with two other individuals, formed a Canadian corporation ("RMM") to buy the shares of a Canadian subsidiary ("EL") of EC for a cash purchase price approximating the cash and near cash on hand of EL and a Canadian subsidiary of EL ("ECL"). Immediately following the purchase, EL was wound-up into RMM and ECL was amalgamated with RMM; and three or four days later, RMM used the cash received by it from EL and ECL to pay off a loan that had financed the acquisition.
In finding that RMM was a "responsible representative", Bowman TCJ. indicated that the words "any other like person" were presumably ejusdem generis with the words preceding them and that if one proceeded from the footing that RMM was no more than a conduit through which EL's funds flowed on the winding-up and liquidation of its business, it followed that it was a "like person" to a liquidator.
The Queen v. Westbrook Management Ltd., 96 DTC 6590 (FCA)
A subsidiary of the taxpayer, which had received a nil assessment and nil reassessment by the Minister for the taxation year in question, was wound-up by the taxpayer without a clearance certificate and then restored following the end of the normal reassessment upon an application of the Minister. In finding that the taxpayer was not liable under s. 159(3), Hugessen J.A. noted that because an assessment, once issued, fixes the liability for tax unless varied, the existing nil assessments bound the Minister.
Boger Estate v. MNR, 91 DTC 5506 (FCTD)
After finding against the Minister on other grounds, Joyal J. accepted the Crown's submission that the fact that a clearance certificate has been issued to the executor of an estate does not free the estate from its liability under the Act.
Administrative Policy
31 March 2014 T.I. 2013-0513191E5 - Director/Executor liability
What is the potential liability of the executor of an estate where the deceased was the sole shareholder and director of an inactive corporation which CRA records shows owes money from a GST and payroll trust account? After noting that "there is no direct legal obligation under the Act for the executor to file a T2 on behalf of the corporation of which the deceased person was the director and sole shareholder" and that "the deceased taxpayer could be liable as a director of the corporation under section 227.1 of the Act or section 323 of the Excise Tax Act," CRA stated:
If the deceased taxpayer has a tax liability, including any that arose from his capacity as a director as described above, and the CRA issues an assessment to that effect, the executor would have the same rights to object that the deceased taxpayer would otherwise have had. … Finally, before making any distributions from the estate, the executor is required to obtain a clearance certificate, pursuant to subsection 159(2)… .
Subsection 159(6.1) - Election where subsection 104(4) applicable
Administrative Policy
29 July 2015 T.I. 2015-0594201E5 - Election under 159(6.1)
Is the s. 159(6.1) election available for a tax liability arising from a deemed disposition of resource property under s. 104(5.2)? CRA responded:
Subsection 104(5.2)… provides that each Canadian resource property and foreign resource property of a trust is treated, for specified purposes, as having been disposed of immediately before the end of a day determined under subsection 104(4), i.e., as indicated in paragraphs 104(4)(a) [to] (c).
Since subsection 159(6.1) specifically refers to tax liability arising on the occurrence of a time determined under paragraph 104(4)(a), (a.1), (a.2), (a.3), (a.4), (b) or (c) which is the time when a deemed disposition pursuant to subsection 104(5.2) occurs, an election under subsection 159(6.1) is possible in respect of tax liability arising from the disposition of property pursuant to subsection 104(5.2) of the Act.