Estate Administration Tax (probate tax)유산 관리세 (상속 검인세)

What is it?

The Estate Administration Tax is a tax the estate (everything a person owned when they died) pays to the Ontario government when the Ontario Superior Court of Justice issues an estate certificate. People often call it “probate fees” or probate tax.

An estate certificate is a court document that confirms who has the authority to manage the estate. Its full name is a Certificate of Appointment of Estate Trustee, and small estates can get a Small Estate Certificate. This process is called probate.

The tax is paid first as a deposit when you apply for the certificate. When the certificate is issued, the deposit becomes the tax. If no certificate is applied for or issued, no tax is owed, and a deposit you paid is refunded.

When do you have to pay it?

The tax does not come from a death alone. It comes when someone applies to the court for an estate certificate and gets one. So the first question is whether probate is needed. The Ontario government suggests getting legal advice from a lawyer on this.

• If the person who died owned real estate or assets held by a financial institution (such as a bank), the estate normally must be probated.
• If the estate has real estate that does not pass to another person by right of survivorship, that is a reason to apply for probate.
• If the person’s home must be sold, the government says to get the certificate before anyone signs an Agreement of Purchase and Sale (APS).
• If the estate is worth $150,000 or less, you can apply for a Small Estate Certificate. The same Estate Administration Tax applies to it.
• No tax is paid when the court issues a certificate for a Succeeding Estate Trustee or an Estate Trustee During Litigation.

What is the rate?

Section 2 of the Estate Administration Tax Act, 1998 sets the rate. It depends on the date you applied for the certificate.

Because of the words “or part thereof” (or part of it) in the law, the estate value is rounded up to the next $1,000. For example, $239,250 is calculated as $240,000. A new application today uses the first row (January 1, 2020 or later).

What counts in the estate value?

The estate value is the fair market value, on the date of death, of everything the person owned. Here is a summary of the Ontario government’s guidance.

• Include: real estate in Ontario, at its appraised value on the date of death, minus debts registered against it (a mortgage, a collateral mortgage or a lien). Use the date-of-death value even if the home sells for more or less soon after.
• Include: bank accounts (foreign banks too), investments such as stocks, bonds and funds, a TFSA, RRSP or RRIF with no named beneficiary, cars and boats (even outside Ontario), property of the deceased held in someone else’s name, and insurance paid to the estate.
• Do not include: jointly owned assets that pass automatically to the other owner, real estate outside Ontario, insurance paid to a named beneficiary, an RRSP, RRIF, TFSA or pension plan with a named beneficiary, and the CPP death benefit.
• You cannot subtract: funeral costs, lawyer’s fees, real estate commissions, credit card debt, a car loan, a line of credit, or unregistered loans. The only debts you subtract are those registered against real estate.

A home in Korea is “real estate outside Ontario”, so it is not included in this tax. Foreign bank accounts are included, though. Check the Korean inheritance process and taxes with a professional in Korea.

Example

If the home was held in joint tenancy

If a couple registered their home in joint tenancy (shared ownership with a right of survivorship), when one owner dies their share passes automatically to the surviving owner. The Ontario government’s guidance says jointly owned assets that pass automatically like this are not included in the estate value. The survivor applies with proof of death to have the deceased owner’s name removed from the title (Land Titles Act, section 123).

There is an exception. Under section 26(1) of the Family Law Act, if a spouse dies owning a matrimonial home in joint tenancy with someone other than their spouse, the joint tenancy is treated as broken just before the death. That share can then become part of the estate.

A home in one person’s name, or a share held as tenants in common, is part of the estate. Putting a child’s name on the title to avoid probate can bring in gift, tax, debt and divorce problems, so this page cannot recommend or judge it. Talk to an estates lawyer first.

Steps from application to return

1. Find out whether probate is needed. Check whether the bank or a buyer will ask for a certificate, and talk to a lawyer.
2. Value the assets as of the date of death. Keep proof such as an appraisal for real estate and statements for accounts. On the court application (Form 74A), list the value of real property, the value of personal property and the total estate value.
3. Apply to the Superior Court of Justice and pay the tax as a deposit. Make cheques payable to the “Minister of Finance”. The guidance lists certified cheques, money orders, bank drafts, lawyers’ trust account cheques and debit as accepted.
4. If you only had an estimated value, you must give the court a signed promise (an undertaking) to file a sworn statement of the actual value within six months and pay any extra tax (section 4(3) of the Act).
5. When the certificate is issued, the deposit becomes the Estate Administration Tax.
6. File an Estate Information Return with the Ontario Ministry of Finance within 180 calendar days after the certificate is issued. You must file it even if the estate value is $0. If the due date is a weekend or holiday, it moves to the next business day. You can file online.
7. Amended return: if, within four years after the certificate is issued, you learn the return was wrong or incomplete, file within 60 days of finding out. If you find new assets, file within 60 days after the statement about them is delivered to the court. Keep the records behind the return for four years.

What to watch out for

• The estate pays the tax. The estate trustee pays it only in their role as trustee (section 2(8) of the Act). That does not mean the trustee can be careless.
• The government says not filing the return, or making false statements on it, can mean a fine of at least $1,000 and up to twice the tax, up to two years in prison, or both.
• The Ministry of Finance can reassess the tax within four years after it was due (the day the certificate is issued), and at any time if a return was not filed or something was misrepresented. If you disagree with an assessment, file a Notice of Objection within 180 days of the notice.
• If you paid too much, you can ask the Ministry for a refund. You must have filed the return within four years after the certificate was issued, and ask within 12 years after the certificate was issued or within 2 years of a Notice of Assessment.
• This is not income tax. The deceased person’s final income tax return, capital gains and the principal residence exemption are separate, so check them with an accountant.
• If you are buying a deceased person’s home, have your lawyer confirm that the seller has the authority to sell (an estate certificate). See “Estate sale” for more.