Earlier this year, the Ontario government announced major changes to the Estate Administration Tax (also known colloquially as "probate fees") in its annual budget. These amendments are a direct result of Ontarians implementing numerous planning techniques to minimize their probate fees payable on death.
After you die, your will may need to be probated. This involves presenting your will and a list of your assets to the Courts for certification that the will is valid and can be relied upon by third parties. At the time of probating the will, an estate administration tax of 0.5 percent must be paid on the first $50,000 of estate assets and 1.5 percent on the value of the remaining assets. Prior to the 2011 Ontario Budget, the Minister of Revenue had very little ability to determine if the appropriate amount of tax (fees) had been paid.
These new changes will require an applicant for a probate certificate to "give the Minister of Revenue such information about the deceased person as may be prescribed by the Minister of Finance ... within the time and in the manner as may be prescribed by the Minister of Finance." This new filing obligation to disclose information about the estate assets will come into force on January 1, 2013.
Of even greater concern are new audit and verification powers being given to the Minister of Revenue. They are modeled after the assessment, objection and appeal procedures in the Federal Income Tax Act. The Minister of Revenue now has the right to assess an estate in respect of its estate administration tax liability. Assuming the filing of the application with the courts is separate from the filing of estate inventory and valuation with the Minister of Revenue, the possibility of an assessment should not hold up the issuance of the probate certificate. However, these changes allow the Minister to conduct a review of the estate inventory and valuation provided in that separate filing and, if a greater estate value is determined, assess additional tax to be paid.
The amended rules will allow an assessment or reassessment to be issued up to four years from the date that original tax became payable (the date of filing for the initial probate application). However, an assessment or reassessment may be made at any time that the Minister considers reasonable, upon establishing:
- That the estate trustee has not filed the information required; or
- That any person has made a misrepresentation that is attributable to neglect, carelessness or willful default, or has committed any fraud in supplying any information regarding an estate or in omitting to disclose any information regarding the estate.
As to be expected, penalties have been added to encourage compliance. Once the regulations are in place, it will be an offence for an estate trustee to fail to make the required filing with the Minister of Revenue. It will also be an offence for any person who makes, or assists in making, a false or misleading statement in connection with the estate trustee's filing.
Offences are punishable by fine, by imprisonment or both. The minimum fine will be $1,000. The maximum fine will be twice the estate administration tax payable.
The requirement to file with the Minister of Revenue will not take effect until the regulations are in place; however, the Minister's authority to (re)assess an estate became effective on May 12, 2011– even in a case in which the application for a certificate was filed before this date. The penalty provisions for false or misleading statements will become applicable for applications made after December 31, 2012.
There is uncertainty with these amendments that pertains to the possible impact on the winding up of an estate. This impact will depend on whether an estate trustee is exposed to personal liability if the estate assets have been distributed before the Minister of Revenue issues a notice of assessment or reassessment. Unlike the income tax rules, there is no ability to obtain a "clearance certificate" to protect the estate trustee from personal liability.
The Estate Administration Tax Act provides that "tax is payable by the estate representative in his, her or its representative capacity only." However, if an estate trustee were to distribute the assets of the estate, would they not still be personally liable under trust law if the additional tax could not be paid? Also, the estate trustee is not protected from the imposition of a fine if he or she is found to have been responsible for a false or misleading statement (assuming the defense of "reasonable diligence" cannot be made).
There are many uncertainties that lie ahead for estate trustees and their advisors. How will the auditors conduct their work? What valuation methods will they employ? Who will be liable for any additional tax? What are the risks to lawyers who act for the estate trustees? Will there be greater compliance? Will these new measures increase the government coffers? A new era in estate administration has begun, and many questions remain to be answered.
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Jordan joined the Assurance & Advisory Group at Soberman LLP in 2008. Jordan is well versed in private and public enterprise affairs. He works with clients, who range from high net-worth individuals to owner-managed and family-run businesses in helping them achieve their goals. Jordan is also a member of the firm's SuRE Services for Family Businesses Group and the director of the Canadian Association of Family Enterprise (CAFÉ) GTA Chapter.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
