Effective January 1, 2020, Ontario eliminated estate administration tax (also known as probate tax) on estates valued under $50,000. These changes, announced during the 2019 Ontario Budget, are intended to provide some relief from the onerous estate administration tax regime.
Estate administration tax is charged based on the total value of the deceased's assets owned at the time of death. Such assets include real estate located in Ontario (less encumbrances), vehicles and bank accounts. Assets that pass outside of the estate (such as life insurance payable to a named beneficiary or property owned jointly that passes by right of survivorship) and real estate located outside Ontario are not included for the purposes of calculating estate administration tax.
The estate administration tax is imposed on the estate of the deceased at the time when the estate representative applies for a Certificate of Appointment of Estate Trustee ("CAET"), either with or without a will. At such time, the estate representative applying for a CAET generally pays a deposit equal to the estate administration tax at the Superior Court of Justice. However, if the deceased's assets or their values are uncertain, an estimated value may be provided to the Court along with an undertaking by the estate representative to make further accurate filings at a later date.
Until January 1, 2020, the Ontario government charged an estate administration tax of $5 for every $1,000 on the first $50,000 of an estate, and $15 for each $1,000 on the value of the estate exceeding $50,000. However, effective January 1, 2020, the first $250 ($5 x 50) is exempt. To illustrate, assume that an individual resident in Ontario died on November 1, 2019, leaving an estate valued at $226,000. The estate administration tax on the value of this estate would be calculated as follows:
|Filing for Certificate of Appointment of Estate Trustee (with or without a will) prior to January 1, 2020||Filing for Certificate of Appointment of Estate Trustee (with or without a will) on or after January 1, 2020|
|Estate Administration Tax on first $50,000||$5 x $50,000 = $250||$0|
|Remaining value of the Estate less $50,000||$226,000 – $50,000 = $176,000||$226,000 – $50,000 = $176,000|
|$176,000 / $1,000 = 176||$176,000 / $1,000 = 176|
|Estate Administration Tax on value above $50,000||$15 x 176 = $2,640||$15 x 176 = $2,640|
|Total Estate Administration Tax Payable||$250 + $2640 = $2,890||$2,640|
During the 2019 Budget, the Ontario government also proposed to extend the deadline for filing Estate Information Returns (“EIRs”). Pursuant to O.Reg.310/14, effective January 1, 2020, EIRs must be submitted to the Ministry of Finance within 180 days of the date of issuance of the CAET. The new deadline has doubled the allotted time period from 90 days to 180 days within the date of issuance of a CAET. The additional 90 days will be beneficial for estate representatives to collect information and substantiate the EIRs.
Despite the attempt of the Ontario Government to provide relief in terms of estate administration tax, Ontario continues to charge some of the highest estate administration taxes in the country. Proper estate planning can mitigate the amount of estate administration tax payable on death and can ease the burden of administrating an estate.
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.