2015 Ontario Probate Tax Rules on Real Estate

Are you a new Ontario estate trustee appointed after January 1st, 2015? Then be prepared for surprises and new probate dangers.

You must comply with new estate tax regulations. I’ll explain the new dangers and penalties you face as executor. I’ll simplify the rules to help you deal with real estate.

Provincial estate tax is becoming big business in Ontario. If you plan your estate or administer one, you must be aware of provincial tax rules. Otherwise, you will add to an estate’s costs and troubles. You may end up making more trips to a lawyer’s office.

New Estate Information Return (EIR)

Ontario estate representatives must now file an Estate Information Return (EIR). If you received a certificate of appointment after January 1st, 2015, the new regulations apply to you.

You must file the EIR within 90 calendar days of when your certificate of appointment is issued. Note: this is not the date you or your lawyer receive the certificate.

Filing incorrect or incomplete information on the EIR requires you to file an amended EIR. This can cause trouble.

Trouble in an estate can start an avalanche of problems. Probate tax problems will create delays and extra costs. That means beneficiaries must wait longer to get their share of the estate. Unhappy beneficiaries can become agitated and hire lawyers. You don’t want everyone lawyered-up to take you to court.

Executors Face New Penalties

Don’t try to fudge the EIR to save provincial estate tax. You need to use reasonable diligence. Watch out, though. Cheaters can be guilty of false or misleading statements on the EIR.

This is now a provincial offence. Upon conviction, cheaters can face:

  1.  a fine of at least $1,000 plus up to twice the tax payable by the estate, or
  2. imprisonment of not more than two years, or
  3. both.

That is more than a slap on the wrist; it is designed to keep people honest.These penalties highlight the Ontario government’s intention to enforce estate tax compliance. Estate trustees will need to maintain financial records.

Estate trustees must certify the information on the EIR. They may also have to defend their probate calculations on an audit. This is because the Ministry of Finance has new audit powers.

Provincial Estate Tax Audit

The Ministry of Finance will do audits to check for compliance with the Estate Administration Tax Act, 1998.
This is not the same as a federal income tax audit.

An EIR can be assessed or reassessed. Interest will not be charged on unpaid tax.

New 2015 Probate Changes

When did these estate tax regulations became law?

The new probate tax requirements are part of Ontario’s Estate Administration Tax Act, 1998. This replaces probate fees with taxes called estate administration tax (EAT).

Remember that probate is a provincial matter. These provincial taxes are not federal income tax. The provincial tax is roughly 1.5% of the value of the probate estate.

Estate trustees appointed in 2015 must now file the provincial EIR.

Let’s look at the estate specifics for Ontario real estate.

EIR and Ontario Real Estate

The EIR must include the following information about real estate properties:

1.    Assessment roll number – from the municipality or property taxes. Look for a nineteen-digit number on a municipal property tax bill.

2.    Property Identification Number (PIN) – for the property from the land registry system. This is a nine-digit number that identifies the property in the government’s files.

3.    Fair market value – a dollar value for the property as of the date of death and the percentage of ownership. The Municipal Property Assessment Corporation (MPAC) valuation may not determine the value. The property must be evaluated as of the date of death. Value can fluctuate depending on the condition of the property and market conditions.

4.    Net value of the property – will be determined by subtracting the value of any encumbrance. An encumbrance could be a mortgage or a line of credit. Frequently, credit card companies register an encumbrance on a person’s property as security. It will be necessary to verify the amounts owing on a line of credit. For example, only $7,800 a $100,000 line of credit could have been used. Exact information is required. Only the $7,800 is deducted to calculate the net.

5.    Percentage interests of property – this will create difficulty in some cases. You may need legal advice to assist you. If Joseph and his sister, Joanna, own a property together, is their interest 50-50 or equal? Or do they have a different percentage of interest in the property, such as 75-25?

The deed describes their ownership as “tenants-in-common”. That means their percentage interest follows their contributions towards the purchase price.

Joseph could have put $10,000 down and Joanna $50,000. Joseph may have a 20% interest in the property.
However, Joseph could have agreed to pay the entire mortgage on the property. This was in exchange for him receiving a 50% interest. Joanna, who put $50,000 down, may have no responsibility to pay the mortgage.

Many questions are raised by the new probate regulations.

It is important to obtain proper legal advice to avoid trouble.

I will post more about the EIR shortly.

About Ed Olkovich

I am Toronto estate lawyer, author and editor of Carswell’s legal guide Compensation and Duties of Estate Trustees, Guardians and Attorneys. I am a Certified Specialist in Estates and Trusts law. I have handled estate disputes and probate problems since 1978. © 2015