Are you an estate trustee, wondering if you need professional tax help? You may say, “Why bother? After all, I prepare my own personal tax returns.” The risks are too ...
Are you interested in saving taxes? As of January 1, 2013, Ontario provincial probate rules have changed. New regulations will impact executors, estate advisors and your estate planning. What you know about reducing probate taxes may be obsolete.
There is no longer a tax called “probate tax” in Ontario. Everyone continues to call these probate taxes even though they are collected under the Estate Administration Tax Act, 1998 (EAT).
The Ontario Government amended EAT as of January 1, 2013. New regulations, when announced, are also going to make further changes.
Canadian courts have legalized what we used to call provincial probate fees. The Supreme Court of Canada declared them to be taxes. The provinces revised their laws to make them provincial taxes. There is no probate tax act but that is a common name to describe the provincial taxes.
Ontario’s Probate Tax Rate
Ontario levies these taxes at 1.5% of the probate estate value. This calculation does not include “all assets.” It also usually excludes the value of joint assets.
We used to use the term “Letters Probate” when a Surrogate Court approved a will. The correct term is now a certificate of appointment of estate trustee. This can be a certificate with or without a will.
What we call probate is really the process of handling an estate. This is after the certificate of appointment is obtained from the Ontario Superior Court of Justice.
What Deductions are Allowed for Probate?
So let’s say you have a fabulous house. Picture it on a ravine lot with a pool. It could be worth two million dollars. But say you have a million dollar mortgage.
In Ontario, I guess you can say you are lucky. You can deduct the value of the mortgage when calculating provincial EAT or estate administration tax. You can’t, however, deduct other debts or expenses like a funeral or credit cards.
So, an estate worth one million dollars could pay probate taxes of roughly $15,000. The rate is only $250 for the first $50,000, so the real amount of tax is $14,500.
Estate Executors Now Subject to Audit
But the law now says your executor can face an audit. Yes, the EAT auditors are real.
What if the executor was your friend, Jeff? We technically refer to him as an estate trustee in Ontario.
And Jeff, being a nice chap, tried to save your estate money. He did not bother to get the house appraised.
Jeff sells your house for $3 million. Who knew ravine lots with pools in Toronto were so rare?
The auditor catches this difference in probate price and sale price. In fact, the government computers found the discrepancy.
They ask Jeff for his appraisals to support his $2 million valuation for your house.
Jeff shyly says he has none.
New Probate Penalties
The estate gets re-assessed for EAT with interest and penalties for failure to remit the proper tax amount. Even worse, Jeff can face charges for making a false or misleading statement.
Oh, nobody warned you about that … until now.
The new rules apply to all applications for a certificate of appointment on or after January 1, 2013.
Who will clarify these rules? Until the regulations see publication, estate advisors will be unsure of the consequences for executors.
This uncertainty may mean all probate tax saving techniques will no longer work. Follow my MrWills.com estates blog and get the latest updates on probate and more.
Read my related post:
- How Not to Probate Wills in Ontario: A Case Study
Edward Olkovich (BA, LLB, TEP, and C.S.) is a nationally recognized author and estate expert. He is a Toronto estate lawyer and Certified Specialist in Estates and Trusts. Edward has practiced law since 1978 and is the author of seven books. Visit his website, mrwills.com, for more free valuable information.
2013 © MrWills.com. This information is not financial, legal, tax advice or a substitute for professional advice. Always consult with a professional before taking any action.