Are Probate Police Patrols Coming to Ontario?

You’ll have to wait for the answer to this question. The Ontario provincial election results may bring some answers. The public and professionals are in the dark. No one knows what is taxed under Ontario’s new probate tax rules. We are waiting for regulations to enlighten us.

Let me explain why this will cost you more money.

If you are an executor, estate administrator or a beneficiary, you’ll want to follow this. The simple stuff is Ontario does not have a “probate tax”. It does have an estate administration tax or EAT. Most people call this provincial tax, probate tax or death tax.

The government has not yet passed regulations under Ontario’s Estate Administration Tax Act, 1998. The new law was effective as of January 1, 2012. Now that the elections are over, you may expect some action on probate. I’ve written before about Ontario’s new probate tax rules. Read my related post, Ontario Probate Taxes: New Rules for 2013.

What you must know about Ontario’s new probate tax

Here are some components about the law affecting estate representatives.

1. Estate representative is defined as an executor, administrator or person to who acts in that capacity. It includes an estate trustee with or without a will.

Estate representatives must pay EAT on the value of the estate.

2. Value of the estate has yet to be defined by the regulations. This is what everyone has been waiting for. The legislation says it is the “value of all property that belonged to the deceased at time of his or her death”.

Currently, the only deduction from value is for a mortgage on the deceased’s real estate. We do not know what must be included in calculating estate value.

Some suggest jointly owned property and even insurance policies will be counted.

The difficulty is that until regulations are passed, the fine print is missing. We do not know what will be taxed.

What do we know?

EXAMPLE:

Say you own a house jointly with dad. The house is worth about $1 million. You say the house is not subject to provincial probate. It passes by rights of survivorship. Bingo. You may have save about $15K in provincial probate taxes. Read more about these mysteries in my related post, Ontario Probate Mysteries Explained.

But, all of a sudden, you are surrounded by darkness.

WHY?

You do not know if the new regulations will force you to pay the tax. Jointly owned property may be included in the definition of estate value. The regulations may cause the house to be taxed for provincial probate. Remember, federal income tax is another matter.

More about what we do know…

3. Estate representative must provide estate information This is when the Minister of Revenue requests. However, what information the Minister requires is still up in the air.

4. Estates can be assessed and reassessed for taxes The Minister can reassess or assess within four years after the tax becomes payable. Not only that, the Minister can extend the time to collect. The Minister need only establish a person failed to comply or made a misrepresentation, carelessly or willfully. Of course, if fraud is involved, there is no deadline to assess.

The estate trustees can appeal an assessment. This presumes there is still money in the estate to pay for an appeal.

5. The Minister of Revenue can appoint inspectors to audit and perform the duties under the Retail Sales Tax Act to enforce the legislation.

To answer my question at the start, auditors are not police. They cannot arrest you. There will not be patrols. However, no person can interfere with an inspector.

Professionals must caution executors, estate trustees and administrators.

It is an offense to give false or misleading statements. This is punishable by both fine and imprisonment.

Estate trustees must keep financial records.

Section 4.9 of the legislation is important. It specifies records must be kept for audit. Estate representatives must keep records to provide to auditors. They must show the proper tax was reported and remitted.

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. © 2014