The purpose of this short primer for accountants on the Amended Estate Administration Tax Act 19981 [“EAT”] is to provide a concise summary of concerns for those accountants dealing with estate administration issues.
Professionals’ Potential for Personal Liability
An accountant who assists an executor in preparing the quantum of assets for an application for a certificate of appointment may find himself/herself personally liable. There might be a negligence claim against accountants who incorrectly advise the estate trustee not to include certain assets. More troubling still, the specific wording of subsection 5.1(2) seems to be broad enough to impose personal liability on anyone assisting the estate trustee. The section states, “Every person is guilty of an offence who, in giving information required under section 4.1 [the disclosure obligations], makes or assists in making a statement that, at the time and in light of the circumstances under which it was made, is false or misleading in respect of any fact, or that omits to state any fact the omission of which makes the statement false or misleading.” The addition of those four words “or assists in making” raises the question whether an accountant’s advice leading to a “false statement” by the client constitutes “assists in making” and puts the accountant at risk. To that end it is prudent for accountants to be doubly vigilant in documenting the advice provided whereby the accountant explains the importance of proper disclosure.
As an Executor – When is it Prudent to Distribute?
Prior to the passing of the EAT it was standard practice for the executor to make an interim distribution prior to obtaining a clearance certificate from the CRA2. The executor wouldconsult with his/her accountant, obtain a worse-case scenarioof taxes owing, and hold back sufficient funds to ensure taxesand professional fees were covered. After obtaining a clearancecertificate the executor would feel safe to distribute the balance after either obtaining a release or passing of accounts. Thepremise of this protocol was to protect the executor if the CRAdiscovered taxes owing and the beneficiaries already spent themoney distributed. Without the clearance certificate, the concernis that the CRA will look to the executor for the shortfall. Now,after the passage of the amendments to the EAT, the executor and his accountant have to worry about schedule 14.Schedule 14 of Bill 173 has introduced significant changes to thepowers and duties existing in the Estate Administration Tax Act,1998, S.O. 1998, c. 34, Sch. (the “EAT”). Notably:
- The Minister of Revenue can now assess or reassess an estate for its tax payable under the EAT at any time within four years after the day on which the tax became payable. There is no mechanism for obtaining an EAT clearance certificate. In fact, the Minister can assess or reassess an estate for its tax payable under the EAT at any time whatsoever if the person failed to comply with his or her disclosure obligations or made a misrepresentation. Are your clients aware of the potential consequences of improper disclosure? Are the executor and/or his/her accountant in danger if they distribute the assets of the estate within four years?
- Any person who fails to comply with the disclosure obligations or who makes a false or misleading statement (or omission) may face imprisonment of up to two years in prison and a fine of twice the amount of tax payable under the EAT. Are your clients aware of their heightened personal liability? Or do they assume that once the certificate of appointment of estate trustee is granted that the executor will suffer no sanction or personal liability?
For a more comprehensive treatment of the EAT we refer the reader to several articles which deal with the EAT in more detail.
- Barry S. Corbin, “Estate Administration Tax – The Nightmare Begins”;
- Barry S. Corbin, “Changes to the Estate Administration Tax Act, 1998: Implications of Audit, Reporting and Enforcement”;
- M. Jasmine Sweatman, “The Amendments to the Estate Administration Tax Act: Watch Out”; and
- Mary-Alice Thompson, “Amendments to the Estate Administration Tax Act, 1998”
This article is intended to help those involved in the administration of estates to be familiarized with some of the concerns related to the amendments to the EAT. It is not a substitute for consulting with a competent lawyer whose own research and analysis may be relied upon. It is not intended to provide substantive legal advice nor opinions.
- Estate Administration Tax Act, 1998, S.O. 1998, c. 34, Sched. ↵
- Please see www.cra-arc.gc.ca/tx/ndvdls/lf-vnts/dth/clrnc-eng.html which is a Canada Revenue Agency website which provides details of the value of a legal representative obtaining a clearance certificate ↵