Long anticipated changes to the collection of Ontario estate administration tax (EAT) came into force January 1, 2015. In addition to estates of deceased Ontario residents, the changes affect estates elsewhere if the deceased owned property (generally real estate) in Ontario.
To some this may seem like old news, as the legislation was passed in 2011, projected to be operational by the beginning of 2013. While some procedural aspects did meet that schedule, most of the substantive changes remained in limbo for a couple of years while estate lawyers and other interested parties provided feedback to the government.
The stated purpose of the changes is to “enhance compliance”, which of course essentially means collecting tax. In pursuing that goal, the government has imposed onerous duties on executors — and it remains to be seen what the net revenue effect will be, given the increase in probate avoidance planning this will no doubt prompt.
Background: Probate and the EAT
Though no longer official legal language in Ontario, ‘probate’ is used generically to refer to the court certification that an executor (officially an “estate trustee”) may act under a Will. It is also often used in reference to the charge levied by the court, which was at one time known as the probate fee, and is now the EAT.
There is no change to the scope of property to which the EAT applies. Beneficiary designations on insurance and registered plans continue to bypass the probateable estate, as does property held by the deceased in joint ownership with someone else. However, EAT does apply to property held beneficially for the deceased, despite how legal title may have been held.
There is also no change to the EAT calculation, which is levied at $5 per thousand of estate value up to $50,000, and $15 per thousand over $50,000. No tax is payable for estates of $1,000 or less.
The EAT is due when the probate application is filed. Until the end of 2014, only three summary values had to be disclosed: personal property (wherever located), Ontario real estate, then a deduction for encumbrances on real estate. If requested however, the executor would have to substantiate the numbers.
EAT changes, 2013-2015
As of 2013, EAT administration migrated from the Attorney General’s office to the Ministry of Revenue (now merged into the Ministry of Finance), managed under the Retail Sales Tax Act. Then a new Estate Information Return (EIR) was published in late 2014, to be used for probate applications filed after January 1, 2015.
As before, the court continues to have oversight/approval of probate applications, and the EAT is still due when the application is filed. Once the court is satisfied that all requirements are met, it issues a certificate to the executor to that effect, which for simplicity we’ll call the Estate Certificate. It is after this point that the brunt of the changes will be felt:
Timing – The EIR is a new/second-step requirement, to be filed with the Ministry of Finance 90 days after the court issues the Estate Certificate. An amended EIR must be filed within 30 days of possible later events including discovering incorrect/incomplete information, discovering new property, or completing an undertaking to the court to update the EAT due if the original payment was an estimate. The executor’s obligation to monitor changes basically runs for four years from the issuance of the Estate Certificate. However, if any filing is late, the government may assess or reassess at any time.
Asset details – The EIR requires disclosure of the fair market value of all assets as of the date of death. This includes Ontario real estate (again, less encumbrances on title), bank accounts, investment accounts, vehicles and vessels, goods, business interests and intangible property. (This last item has increasing relevance in our digital/online world.). The executor must keep records of how valuations were determined, and the official guide suggests the use of professional appraisers depending on the nature of the assets. In addition to values, identifying information such as addresses and account numbers are required, as applicable.
Penalties – If the executor fails to file the EIR or an amendment as required, or makes false or misleading statements, there can be a fine from $1,000 to twice the EAT and a potential prison term of not more than two years.
Official resources
The scope and depth of the changes go beyond these highlights. More detailed information can be found from official government sources:
Estate information return:
http://www.forms.ssb.gov.on.ca/mbs/ssb/forms/ssbforms.nsf/GetFileAttach/9955E~1/$File/9955E.pdf
Increased government revenue?
As a matter of interest, the last time there was a significant change in this area was 1992 when the rate was roughly tripled from 0.5% to 1.5%. (The actual formula is outlined above.) While revenue bumped in the first year, it quickly settled back, presumably as counter-planning efforts took hold.
For current reference, in 2014 the EAT generated gross revenue of $149 million – a large figure in isolation, but less than 0.2% of the province’s $89 billion tax revenue that year. Whether that top line figure will grow in future would be speculative at this point, and it is also unclear what additional administrative cost will be needed to harvest the tax.
What is certain is that the cost, complexity and exposure for estates and executors have risen. For those at the planning stage, this may be the nudge needed to seriously consider probate avoidance strategies, ideally with advice from a qualified lawyer.