Anonymised, illustrative composite. An estate sold the deceased's freight brokerage and distributed the proceeds to three beneficiaries within weeks. The executor became personally liable for tax the estate had not reserved for, out of his own pocket.
At a glance
The deceased had built a freight brokerage over eighteen years and owned all of it directly. Under the will, his estate passed to three adult children in equal shares, and the executor — the eldest of the three — sold the company's shares to an unrelated buyer for $2,100,000 as part of settling the estate. He filed the deceased's terminal return, paid the tax the return showed as owing, and six weeks after the sale closed, distributed the remaining net proceeds equally to himself and his two siblings. He had administered two smaller estates before and had never needed to think about anything beyond the terminal return.
Every legal representative of a taxpayer — an executor, an administrator, a trustee other than in bankruptcy — steps into a statutory role the moment they take that office. ITA s.159(1) makes them jointly and severally liable, to the extent of the property in their possession, for the taxpayer's unpaid amounts. Subsection (2) then adds an affirmative step before the estate can be wound up.
Three months after the distribution, CRA opened a routine payroll compliance review of the company — standard practice on a change of ownership — and found the deceased's company had underremitted source deductions for the eighteen months before his death, a gap the deceased's own bookkeeper had never caught. The arrears, with interest, came to $340,000, assessed against the deceased's estate as a liability that existed “at or before” the relevant time under s.159(1)(a). By then the estate held nothing: everything had already gone to the three beneficiaries.
$2,100,000 distributed against $340,000 assessed — the estate's liability was well within what had been paid out, which mattered, because s.159(3) caps a legal representative's personal liability at the value of what was actually distributed. Had the arrears been $2.4M against a $2.1M distribution, the executor's exposure would have stopped at $2.1M; here, since $340,000 was comfortably less than $2,100,000, the cap did nothing for him. He was liable for the full $340,000, out of funds he no longer had unless he clawed it back from his own siblings.
Two subsections, read together. s.159(2), headed “Certificate before distribution”, provides that every legal representative “shall, before distributing to one or more persons any property in the possession or control of the legal representative acting in that capacity, obtain a certificate from the Minister”, applied for in prescribed form, certifying that the amounts the taxpayer is or can reasonably be expected to become liable for, and the amounts the legal representative can reasonably be expected to become liable for in that capacity, have been paid or secured.
Read the unit. The certificate is not confirmation of what has already been assessed — it certifies amounts the taxpayer “can reasonably be expected to become liable” for, which is exactly the category the payroll arrears fell into: a liability that existed on the facts but had not yet been assessed when the executor distributed. Applying for the certificate is what would have put CRA's own compliance history on the file before the money left the estate, rather than after.
s.159(3), “Personal liability”, supplies the consequence for skipping that step: where a legal representative distributes property “without obtaining a certificate under subsection (2) in respect of the amounts referred to in that subsection”, “the legal representative is personally liable for the payment of those amounts to the extent of the value of the property distributed”, and the Minister may assess the legal representative directly, with the ordinary assessment and interest provisions applying as if it were an assessment under s.152. There is no good-faith exception in the text for a liability the executor did not know about — the section does not ask what he knew, only whether he obtained the certificate first.
One further point the file did not need but is worth recording: s.159(3.1) treats an “appropriation by a legal representative of a taxpayer of property in the possession or control of the legal representative acting in that capacity” as “deemed to be a distribution of the property to a person”. An executor who simply keeps estate property for himself, rather than formally distributing it, does not sidestep s.159(2) by that route either.
CRA assessed the executor personally for the full $340,000 under s.159(3), plus interest running from the original due date, not from the date of the distribution. He negotiated a partial repayment from his siblings under an indemnity in the will's residue clause, which covered a portion; the rest came out of his own funds and took over a year to work through, with the interest clock running the entire time.
An application for the s.159(2) certificate before distribution would have put the estate's file in front of CRA while the property was still in the executor's hands. CRA's own processing time for a certificate is not something this file verifies, so it cannot say the arrears would necessarily have surfaced before the certificate issued — but the executor would have been distributing with the protection of s.159(2) rather than the exposure of s.159(3), and any liability that did surface afterward would have fallen on an estate that had not yet been emptied.
The tell was procedural, not financial: nobody asked whether a certificate was needed before the cheques went out, because the terminal return had already been filed and paid. A terminal return, a corporate return and a s.159(2) certificate answer three different questions, and only the third one is aimed at what might still be found. Filing and paying the return you know about is not the same as obtaining the certificate that covers what you do not.
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