Principal Issues: Whether the debt of a taxpayer needs to be established through an assessment in order to assess the taxpayer's legal representative?
Position: No.
Reasons: An assessment does not create a tax liability, but is at most a confirmation of its existence. The liability results from the Act.
November 3, 2010
Montréal TSO HEADQUARTERS Assistant Director Income Tax Rulings Directorate Audit - Small & Medium Enterprises Richard Aronoff Attention: André J. St-Amand (613) 941-7239
2010-037886
Establishment of the Debt of a Deceased Taxpayer to tax the Personal Representative
This is in response to Louis-Michel Larose's email of August 20, 2010 wherein he requested an interpretation of whether, for purposes of the Income Tax Act, the debt of a taxpayer needs to be established through an assessment in order for the taxpayer's legal representative to be held liable under subsection 159(3).
Subsection 152(3) provides that a tax liability is not affected by an incorrect or incomplete assessment or by the fact that no assessment has been made. In the case of The Queen v. Simard-Beaudry Inc., 71 D.T.C. 5511 (F.C.T.D.), it was held that an assessment does not create a tax liability, but is at most a confirmation of its existence. The liability results from the Act. The liability comes into existence the moment income is earned notwithstanding that the assessment may be made one or more years after the taxable income is earned. A taxpayer's liability to pay tax remains the same, regardless whether a notice of assessment is mistaken or is not sent at all, see Riendeau v. M.N.R., [1990] 1 C.T.C. 141 (F.C.A.).
Under paragraph 159(2)(a) the liability of the legal representative is not only for amounts that the taxpayer was liable under the Act, it extends to amounts which the taxpayer is or can reasonably be expected to become liable under the Act at or before the time the distribution is made from the estate. Accordingly, the debt of a taxpayer does not need to be established through an assessment in order to assess the taxpayer's legal representative. The legal representative is liable under subsection 159(3) for the payment of the taxes, interest, and penalties owing by the taxpayer to the extent of the value of the property distributed unless a clearance certificate is obtained pursuant to subsection 159(2).
Should you have any questions or require clarification, please do not hesitate to contact Richard Aronoff at the number provided above.
B.J. Skulski
Manager
Insolvency and Administrative Law Section
Income Tax Rulings Directorate
c.c. Louis-Michel Larose
Team Leader Estates and Trusts
Montreal TSO