We have all heard the saying that there are only two certainties in life: death and taxes. The recent decision of Evans Estate (Re), 2018 NSSC 68 confirmed the truth of that saying, but the decision reverses the order (at least in the saying) when it comes to who gets paid first from estate assets. The Canada Revenue Agency (CRA) has priority to estate assets for any amounts owed to it over the reasonable funeral expenses charged by a funeral home for their services to the deceased. This priority becomes important when a personal representative (executor or administrator) is dealing with an insolvent estate.

In Evans Estate (Re), the Public Trustee was the administrator of an insolvent estate and applied for an order from the Registrar of Probate to set out the order of entitlement to just over $1,500 in the estate. Both the CRA and the funeral home were each owed more than the assets available in the estate for distribution.

Probate Act:

Under Nova Scotia’s Probate Act, there are certain priorities to estate assets. The personal representative (the executor or administrator) is required to address claims to estate assets following those priorities, or the personal representative risks being personally liable for any payments that do not follow the priorities set out in the Probate Act. This is particularly important in an insolvent estate where there are insufficient assets to satisfy all of the claims to estate assets.

The first priority under the Probate Act is the payment of reasonable funeral expenses (including a headstone). The fifth priority is “all other debts,” which the Registrar of Probate in Evans Estate (Re) decided the amounts owed to CRA fell under, so her order stated that the just over $1,500 should be paid to the funeral home as the first priority. CRA debts are not expressly mentioned in the Probate Act, but the Registrar of Probate interpreted that “all other debts” included amounts owed to the CRA

Income Tax Act:

Under the federal Income Tax Act, a legal representative (the executor or administrator in an estate) is required to pay any amounts owed by the deceased to the extent that the legal representative “is at that time in possession or control…of property that belongs or belonged to or that is or was held for the benefit of, the taxpayer or the taxpayer’s estate.” Failure to do so means that the legal representative is personally liable to the extent that the estate’s assets would have satisfied those the amounts owed to the CRA.

Court’s Decision:

The Court was faced with the dilemma of two pieces of legislation, a provincial and federal one, that do not “speak” to one another. The Probate Act is concerned with estates but not amounts owed to the CRA specifically, and the Income Tax Act is concerned with taxation and not estates necessarily. The two laws are  inconsistent with one another to the extent in that both set out different priorities to estate assets.

The Court applied the doctrine of paramountcy, a well established constitutional principle, to resolve this conflict. The doctrine of paramountcy states that where there is a conflict between a provincial law and a federal law, such that it is impossible to comply with both, the federal law prevails to the extent of the inconsistency. In this case, the amounts owed to the CRA take priority over even the amounts owed to the funeral home.

Dealing with an estate is a complicated matter, particularly where the estate is or may be insolvent (Please note that there are unique rules for bankrupt estates, which would have likely made the outcome of this case different). The executor or administrator of an estate should seek legal advice to determine how to properly fulfill his or her duties.