Before a wound-up company’s money reaches its shareholders, whoever does the distributing must obtain a certificate from the Minister. Income Tax Act subsection 159(2) requires it, and subsection 159(3) makes the person who skips it personally liable for the company’s unpaid tax, up to the value of everything handed out.
Key takeaways
SECTION 01 OF 10
The duty falls on the person, not the company. Subsection 159(2), marginal note Certificate before distribution: “Every legal representative (other than a trustee in bankruptcy) of a taxpayer shall, before distributing to one or more persons any property… obtain a certificate from the Minister”.
It covers amounts “for which the taxpayer is or can reasonably be expected to become liable under this Act at or before the time the distribution is made” and those “for the payment of which the legal representative is or can reasonably be expected to become liable in that capacity”. Paragraph (a) is not confined to assessed tax: a filed but unassessed final return settles nothing.
SECTION 02 OF 10
The section 248(1) definition is a list closed by a catch-all: “a trustee in bankruptcy, an assignee, a liquidator, a curator, a receiver of any kind… or any other like person, administering, winding up, controlling or otherwise dealing in a representative or fiduciary capacity with the property”.
No director appears there, which is why the section reads as an estates rule. IC82-6R13 closes the gap: “The reference to any other like person includes any person acting as a liquidator, whether or not the person was formally appointed… the responsibility may be assumed by an auditor, director, officer, or other person.” CRA position, not statutory text — but the Act’s words are functional, not titular. See Treadstone Law on the certificate before dissolving.
SECTION 03 OF 10
Under subsection 159(3), marginal note Personal liability, a representative who distributes without one “is personally liable for the payment of those amounts to the extent of the value of the property distributed”, and paragraph (b) adds that “the Minister may at any time assess the legal representative in respect of any amount payable because of this subsection”.
No due-diligence defence appears in the subsection, and no fault element: the trigger is the distribution, not knowledge of the debt. Paragraph (c) applies the ordinary machinery “including, for greater certainty, the provisions in respect of interest payable”. Keeping the money does not help — subsection 159(3.1) deems “an appropriation by a legal representative of a taxpayer of property in the possession or control of the legal representative” a distribution.
SECTION 04 OF 10
The corporation is taxed first — that layer and the capital dividend account are covered in the two levels of tax on an asset sale. Then the cash leaves, and someone is distributing property. Corporate law and tax law push opposite ways here. CBCA subsection 210(3) permits dissolution only where “the corporation has distributed any property and discharged any liabilities before it sends articles of dissolution to the Director”; its guide says “A corporation can be dissolved only when its property has been distributed and its liabilities have been discharged.” Tax law says certify first: the certificate belongs between closing and the articles. IC82-6R13 excepts only a completed subsection 87(2) rollover: “For any other type of corporate dissolution, you should get a clearance certificate before you distribute the corporate property.”
SECTION 05 OF 10
IC82-6R13 says the amounts “include all income taxes (including provincial and territorial taxes that we administer), along with any interest and penalties”, and that the certificate “also covers the payment of any outstanding Canada Pension Plan contributions and Employment Insurance premiums”.
It is narrower in time than assumed: it “covers only the properties you controlled from the date you received control to the date you asked for the clearance certificate”, and a property found later needs a fresh one. The CRA’s own relief: “You do not need a clearance certificate before each distribution, as long as you keep enough property to pay any liability to us.” That is the basis for a wind-up holdback rather than one payout — the deal-side version is at a holdback for reassessment risk.
SECTION 06 OF 10
A registrant has a parallel duty in the Excise Tax Act; one certificate does nothing for the other. ETA subsection 270(3): “Every representative of a registrant shall, before distributing to any person any property or money under the control of the representative… obtain a certificate from the Minister”. Subsection (4) makes it “personally liable for the payment or remittance of those amounts to the extent of the value of the property or money so distributed”.
The scopes differ. A representative under subsection 270(1) is “a person, other than a trustee in bankruptcy or a receiver, who is administering, winding up, controlling or otherwise dealing with any property, business, commercial activity or estate of a registrant”. It is bounded by reporting periods — “in respect of the reporting period during which the distribution is made, or any previous reporting period” — where the income-tax certificate is bounded by expectation. Use GST352 for the first, TX19 for the second; transferee liability is a separate route, in the related-party transfer article.
SECTION 07 OF 10
Section 116 is marginal-noted Disposition by non-resident person of certain property, subsection (2) Certificate in respect of proposed disposition, subsection (5) Liability of purchaser. It points the other way on every axis.
Section 116 protects the purchaser, is triggered by a non-resident disposing of taxable Canadian property, and is discharged at closing by withholding. Section 159 protects only the representative who obtains it, is triggered by a distribution, and is discharged once the final return is assessed. One says nothing about the other: see the certificate a non-resident seller needs and Treadstone Law on section 116.
SECTION 08 OF 10
A WSIB clearance is a provincial workers’ compensation instrument. Ontario’s policy cites Workplace Safety and Insurance Act, 1997 section 141 as its authority: “By issuing a clearance, the WSIB waives its right to hold a principal liable for unpaid premiums and other amounts the contractor owes the WSIB, for the validity period of the certificate.” It “is valid for up to 90 calendar days, depending on the date that it is issued, and is renewable” (clearances page) and reports a contractor’s standing, not a tax position.
The sale risk sits elsewhere in that Act: section 146, Obligations of successor employers, applies where an employer “sells, leases, transfers or otherwise disposes of all or part of the employer’s business”, and subsection (2) states: “The person is liable to pay all amounts owing under this Act by the employer immediately before the disposition.” Buyer-side, Ontario-only, untouched by any federal certificate: Treadstone Law on the WSIB clearance.
SECTION 09 OF 10
Federally, CBCA subsection 226(2) lets a proceeding be brought against a dissolved corporation “within two years after its dissolution”, and subsection (4) makes a shareholder who took property “liable to any person claiming under subsection (2) to the extent of the amount received by that shareholder on such distribution”. Ontario differs: OBCA subsection 243(1) imposes the same liability, “to the extent of the amount received by that shareholder upon the distribution”, but states no two-year period.
Neither clock binds the Minister as against the representative: paragraph 159(3)(b) says the assessment may be made “at any time”. Recovery from the shareholders is a separate route, section 160 — see shareholder liability and creditor claims after dissolution.
SECTION 10 OF 10
The order is fixed by what the CRA demands. TX19’s instructions say not to file until “you have filed the required tax return(s) and have received the related notice(s) of assessment” and the tax, CPP and EI are paid or secured. For a corporation IC82-6R13 also wants the resolution to dissolve, the final T2 notice of assessment, and “a statement of distribution of the company assets to date as well as the scheme of the distribution of company assets at the date of wind-up”.
The exposure is not theoretical: under subsection 152(3.1) a CCPC’s normal reassessment period is “the period that ends three years after the earlier of the day of sending of a notice of an original assessment” or a nil notification. Distributing on day one of that run is what subsection 159(3) is aimed at. The payout is also a shareholder event — subsection 84(2) deems a dividend where funds go out “on the winding-up, discontinuance or reorganization of its business” above the paid-up capital reduction.
Once it arrives, move: the CRA expects you to “complete, as soon as possible, the actual transfer or distribution of any property over which you have control”, and CBCA section 221 tells a liquidator to “distribute any remaining property of the corporation among the shareholders according to their respective rights”. Treadstone Law: how to wind up, the tax, owing the CRA, outstanding debts.
They become personally liable for the company’s unpaid tax, up to the value of everything distributed, and the Minister may assess them for it at any time under subsection 159(3). No due-diligence defence or fault element appears in that subsection — the trigger is the distribution itself, not knowledge of the debt.
No. Section 116 protects the purchaser when a non-resident disposes of taxable Canadian property, and is discharged by withholding at closing. Section 159 protects the person distributing a wound-up company’s property, and is discharged only once the final return has been assessed.
Not necessarily. CRA guidance says a certificate is not required before each distribution as long as enough property is kept back to cover any liability owed — the basis for a wind-up holdback held against the estate rather than one clean payout to shareholders.
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