One of the biggest recent challenges for executors in Ontario has been the introduction of the Estate Information Return (EIR), a reporting form that requires executors to provide detailed information regarding the value of assets in an estate. In the past, executors in the province could provide the government with the amount they had calculated as the value, but without having to provide supporting documentation.
The provincial government sought to address what it believed was the underreporting of estate values (Ontario charges an estate administration tax, or probate tax, based on the estate’s value) by introducing the EIR in January 2015. The executor must file the EIR within 90 days of receiving a certificate of appointment of an estate trustee (a.k.a. executor), also known as a probate certificate. Failure to file an EIR or making false statements on a return could leave executors or professionals who advise them facing fines, penalties or even imprisonment.
As part of the EIR process, Ontario has a window of up to four years after the issuance of the certificate of probate to reassess the value of the estate. If an audit determines that the estate’s value was underestimated, the estate is liable for the additional taxes associated with the undervaluation.
This presents an issue for executors in terms of when to begin distributing the assets in an estate, says Keith Masterman, vice president of tax, retirement and estate planning at CI Investments Inc. in Toronto. He suggests that holding off from distributing assets for four years in order to protect against a possible reassessment might not be practical for executors in most cases. A preferable solution, Masterman adds, might be to communicate the risk of reassessment to the beneficiaries and ask them to sign an indemnity form at the time of distribution that states that they would provide funds in case of reassessment. “That’s about as close as I can get to finding a solution,” he says.
The Ontario government has stated it would provide executors with a comfort letter acknowledging receipt of the EIR, but only after they’ve obtained a clearance certificate from the Canada Revenue Agency indicating that the estate has paid any taxes owing. Even so, these comfort letters represent little more than “cold comfort,” Masterman says, as they don’t provide any real assurances that the estate won’t be reassessed. “At least, they give you something to show the beneficiaries that you tried, but that’s really all that is.”
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