Bill 173 contains provisions which will change the way estate administration tax (commonly known as probate fees) is collected. The Bill received second reading on April 14, 2011; April 21, 2011 was the date scheduled for public hearings before the Standing Committee on Finance and Economic Affairs; and third reading was scheduled for May 10, 2011.

Currently, when the executor named in a will applies to probate the will, or when a next of kin applies for a certificate of appointment as estate trustee where there is no will, estate administration tax is payable to the Minister of Finance based on the value of the deceased's assets which will be administered using the certificate issued. The fees are paid to the estate court office in the relevant jurisdiction when the application is made.

When the new provisions come into force, on and after January 1, 2013, the provincial Minister of Revenue ("MNR") will be able to assess the tax. When an estate representative applies to obtain a certificate, he or she will be required to provide prescribed information to the MNR about the deceased. As there are no draft regulations, we have no information on what information will actually be required. However, we know that the new provisions require the estate representative to keep records and books of account in the form and containing the information that will enable an accurate determination of the tax payable. Therefore, the prescribed information will likely require details about the deceased's assets and the value of the assets.

The MNR will assess the taxes. Certain provisions of the Ontario Retail Sales Tax Act will apply to govern the procedure for assessments and reassessments, objections and appeals, and administration and enforcement.
The MNR will be able to assess or reassess for a period of four years after the day the tax is payable, which is the date the application to the court is made (or forever if there is failure to comply, misrepresentation, or fraud). It will be an offence to fail to comply or to misrepresent information, punishable by a fine of $1,000 up to two times the tax payable if the tax payable is more than $1,000, and/or imprisonment for up to two years.

What does this mean?

It means the value of the assets of the estate for probate or administration purposes will have to be supportable. Currently, estates generally obtain valuations for capital and depreciable property on death because of the federal deemed disposition rules. Often personal-use property is not formally valued because the chances of it gaining in value are low (i.e., a used car or furniture), or because it passes to a joint owner (usually a spouse or partner) by survivorship. Now, even if it is not necessary for federal tax purposes, valuations will be necessary for all property passing under a probated will or where there is no will.

The new procedures may also unduly delay the application for a certificate of appointment. Currently, if values are uncertain, the applicant can file an affidavit attesting to the estimated value and undertake to file a further affidavit concerning value once known. It is not clear whether this will still be permitted. If it is not, there could be significant delays in obtaining the certificate of appointment and thus delays in administering the estate.

It is also not clear whether the changes will have the effect of doing away with the use of a separate will to avoid paying the tax on the value of some of the deceased's assets. The legislation refers to providing the MNR with "such information about the deceased person as prescribed". Note the information is not limited to information about assets; it is any information prescribed to the deceased person. But it remains to be seen if the Minister will require information on, and assess tax on, all assets, not just those covered by a will to be submitted to the court for probate.

Presumably, the information gathered will be accessible by the federal government so that when the final T1 is filed, the information about asset values on the T1 will need to match the information provided to the MNR.

The MNR will have four years to reassess from the time the tax is due. However, there is no provision for a clearance to be obtained. Therefore, an estate representative may not wish to settle an estate until four years after the application for probate in order to limit his or her personal liability for any unpaid tax. We also do not know what the position will be if an asset is discovered long after the initial application was made. Will the four-year period reset? Will the MNR assess interest and penalties based on the date of the initial application?
So, what the new legislation really means is that it will become more costly and take more time to administer estates after 2012.

Notes

1. This article appeared originally in CCH's Tax Profile, May 2011. Bill 173 received Royal Assent on May 12, 2011, as S.O. 2011 c. 9. See further, Barry S. Corbin, "Estate Administration Tax—The Nightmare Begins", Deadbeat, Vol. 29, No. 4, May 2011.