Special Feature

Tax Tools: Special Report on Taxes 2015

In this special feature: Timely RRSP and RRIF withdrawals; fixing errors on tax returns; helping your clients choose tax-preparation software; and much, much more from the Mid-October 2015 issue of Investment Executive.

Estate executors now will be required to file a new form estimating the value of an estate - with supporting documention. Failure to file or making false statements may lead to fines, penalties and even imprisonment

By Rudy Mezzetta | Mid-October 2015

A new reporting requirement for the valuation of an estate in Ontario for probate purposes has added complexity and cost to the process of settling an estate for executors in the province.

"Before, all you had to do was send [the Ontario Ministry of Finance] an estimate of what you thought the estate was worth," says Matthew Ardrey, consultant and manager, financial planning, with T.E. Financial Consultants Ltd. in Toronto "Now, [the Ministry of Finance] is saying, 'Well, that's a nice estimate, but prove it.' "

Since the beginning of this year, the Ontario Ministry of Finance has required executors, known as "estate trustees" in Ontario, to file an estate information return (EIR) within 90 calendar days of receiving a certificate of appointment of estate trustee, known informally as a "probate certificate." The EIR provides supporting information for the value of the assets in the estate.

Prior to the change, the estate trustee would provide the government with the amount he or she had calculated as the value of the estate without having to provide supporting documentation. The Ministry of Finance charges an estate administration tax, or probate tax, based on the total value of the estate.

"The government thought it was getting shortchanged on this tax," says Ardrey. "[The Ministry of Finance] thought that people were being too conservative in their estimates."

If the government determines through an audit that an estate's value was underestimated, the Ministry of Finance can issue an assessment or reassessment notice up to four years after issuing the probate certificate.

"After the Ministry of Finance receives and processes the EIR, the estate remains subject to verification and audit," wrote a spokesperson for the Ontario Ministry of Finance in an emailed clarification of the process. "The legislative limitation to audit an estate is four years from the day the [estate administration] tax becomes payable, which is the date that the estate certificate is issued by the court."

Beyond the four-year limit, the Ministry of Finance still can assess or reassess an estate if the estate trustee fails to file an EIR within 90 days, deliberately makes false statements or excludes information on a return. Estate trustees who fail to file an EIR or who make false statements on a return may be liable to a fine, penalties or imprisonment.

"Estate trustees, and Ontarians in general, need to be mindful that when it comes time to settle an estate, they need to be diligent in determining a valuation," says Wilmot George, vice president of wealth planning with CI Investments Inc. in Toronto. "It's easier now for the Ontario government to reassess or gather more comprehensive information should it need to."

Estate trustees may want to obtain formal valuations of the assets held by an estate to make sure the trustee can support the total estate valuation.

"Of course, it's going to cost estates a lot more [to obtain the valuations]," says Barry Corbin, estate lawyer with Corbin Estates Law in Toronto.

Information about assets such as real estate situated in Ontario, bank accounts, non-registered investments and proceeds from registered accounts that pass through the estate are included in an EIR. Information about assets such as real estate situated outside of Ontario, Canada Pension Plan death benefits and proceeds from registered assets that pass outside of the estate aren't included.

If an estate trustee realizes that a submitted EIR is incorrect or incomplete within four years of receiving a probate certificate, he or she must submit an amended EIR to the Ministry of Finance within 30 days of becoming aware of the error. After four years, there's no obligation to do so.

Probate taxes in Ontario are set at $250 for the first $50,000 (or $5 for each $1,000, up to $50,000), then at 1.5% of the estate thereafter.

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