Effective as of January 1, 2013 changes to the Ontario Estate Administration Tax Act (the “Act”) are being implemented which will elevate the obligations and the commensurate risks for individuals making an Application for either a Certificate of Appointment of Estate Trustee with a Will or a Certificate of Appointment of Estate Trustee without a Will (where a testator has died intestate).
Currently, all applicants must disclose in the appropriate form the value of the deceased’s assets, both real estate and personalty, and pay to the Minister of Finance an amount on account of the estate administration tax (the “tax”) which is calculated in accordance with the rates set out in the Act. In general terms, for estates having a net value in excess of $50,000, the rate of tax is 1.5% of the amount of the estate in excess of the $50,000, for which amount the tax is $250. For example, for an estate having a value of $350,000, the tax will be $4,750, calculated by adding $250 (for the first $50,000 of value) to $4,500 (being 1.5% of the excess of the value over $50,000, or $300,000). The tax is paid at the same time as the Application for the Certificate of Appointment is made to the Superior Court of Ontario in the court district where the deceased lived. In limited situations, where the value of the estate has not been determined or is not determinable at the time of the Application the applicant may file an estimated value of the estate coupled with an undertaking to file a supplementary affidavit and pay the tax once the value has been determined.
Up until now the calculation, and payment, of the tax has been on the honour system with no formal valuations of the underlying assets of the estate being required and no repercussions if the valuations were not accurate. However, with the fiscal crunch in the Province of Ontario the officials in the Ministry of Finance have been looking for ways to increase overall tax revenues and they have identified the administration of estates as a potential source of additional revenue.
The changes to the Act will now require that all applicants for a Certificate of Appointment file a detailed inventory listing of all of the deceased’s assets with their respective values. The rationale for this is that applicants in the past have not been diligent in assigning the correct value to the assets, have often misrepresented the value and have also omitted certain assets from the calculation. To ensure that applicants not take their responsibility lightly the Minister of Revenue will now appoint inspectors to administer the Act with expanded powers to compel applicants to provide information and documents relative to the administration of estates.
Furthermore, the Minister of Revenue has the power under the Act to issue a reassessment at any time within four years of when the tax became payable – usually four (4) years from the date of the filing of the Application for a Certificate of Appointment. Of course, in cases where the applicant was negligent, careless or fraudulent, there is no limitation as to when the re-assessment may be made and the government may come and ask for additional tax at any time.
The bottom line for applicants is that they must be diligent in identifying assets, record keeping and discharging their obligations under the Act. They will need to get formal valuations of real estate and also expert estate valuations of personal effects. They will not be able to escape the payment of tax because the beneficiaries have exercised self-help in divvying up the personal and household effects of the deceased. The applicant will be responsible not only to the Minister of Revenue but to unhappy beneficiaries in the event of a reassessment of the tax which may require beneficiaries to contribute to its payment.