Ontario Estate Administration Tax

Ontario Estate Administration Tax
Starting January 1, 2015, Ontario now requires the Estate Trustee (Executor) to file an Estate Information Return with the Ontario Minister of Finance for any probated Will. The return will be due within 30 days of acquiring your Letters Probate (Certificate of Appointment). This new requirement will decrease privacy and increase expense and delay for estates requiring probate.

Old Rules

Court applications for probate normally only require the value of the estate assets to be provided in lump sum totals broken down into just two categories:

1) Real estate Net Value after deducting the mortgages; and

2) Personal property, which is everything else, including cash, stocks and investments.

Now

The Ontario Estate Information Return requires a detailed list of assets of the deceased, and a detailed description and value of each asset.

In some cases, only the assets located in Ontario need to be reported.

  • For Real Estate… the full address of the property, the assessment roll number, full mortgage details, the property identifier number used for land registration purposes and the property value…all have to be provided.
  • Cash or investments… the full details including account numbers, and the name and address of the institution holding the investments.  
  • Other assets…vehicles, furniture, art collectibles… all have to be itemized in the Ontario Estate Information Return along with their market values.

RRIF Taxation for Expats

Canadians in Mexico are subject to 25% taxation of their RRSP and RRIF at death.  Read more.

How to Avoid “Probate” Taxes

The “Estate Administration Tax” has replaced “Probate Fees” since December 1998. For this discussion we will use the term “Probate” for its nostalgic value.

There are several methods that can be used to lower probate costs, some more useful than others. However, some are downright dangerous. Here, we will only look at two areas of probate avoidance:

Real Estate

  1. In many cases, if a property was originally registered under the old Registry Act system and then administratively converted to the Land Titles system, it can be transferred or sold without obtaining probate and without paying the government any tax.
  2. Transferring title of a parent’s house into joint names with children is a common technique but one loaded with risks.
  • What if the child’s marriage breaks down, the child runs into credit problems or is sued?
  • What if the relationship with the parent deteriorates?
  • If the parent wishes to sell or encumber the property, the child must sign as well.
  • There is the risk of capital gains accrual to the child under certain circumstances.
  • If land transferred into joint names with a child is an investment property or a cottage, serious tax consequences can arise as a result of the transfer.

Multiple Wills

Using multiple wills is an increasingly common way of avoiding probate tax.

One Will is used for those assets that must be probated for practical or legal reasons. This might include land historically in the Land Titles system, as well as term deposits, bank accounts, shares in public companies, GICs and other investments. Estate administration tax is payable on all the assets included in a general will.

A second Will can be used to deal with assets that can easily be transferred to the beneficiaries without probate. The excluded properties Will instructs the estate trustee not to apply for probate. As a result, payment of estate administration tax is not required.

Typically, the assets in this type of will are the shares of a private family company or business, and personal property including jewelry, furniture and art. In this scenario, shares in a family business are exempt from payment of the 1.5 per cent probate tax. However, there is no exemption from federal income and capital gains taxes if they apply.

The significant probate-tax savings will usually far exceed the legal fees involved in preparing an additional, and fairly sophisticated, Excluded Properties Will.

When dual Wills are used, they must be carefully drafted to ensure that the secondary or Excluded Properties Will does not revoke the general Will. The Wills must also be written to make clear which assets are to be probated and which are not.

If you want to learn more about the suitability of using two Wills, or need assistance in estate planning, we can refer you to a Canadian Financial Consultant who works extensively with Canadians in Mexico.

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