Ontario has introduced a new Estate Administration Tax (EAT) starting in 2015. The essence of the new tax is that the reporting requirements will be much stricter and will have to be done faster than in the past. Reporting is also more complicated and penalties more onerous, so dealing with estates will be less fun than in the past.
The estate management tax rate ranges from 1% to 1.5%, with a maximum of 1.5% in the range of $5 million or more for the value of the estate. This fee will apply to most assets: real estate, bank accounts, vehicles, and registered accounts that do not have a designated beneficiary. Any assets that do not pass through the estate would not be subject to this tax: life insurance policies with a person as the named beneficiary, real estate outside of Ontario, and CPP death benefits are a few examples. This tax is generally paid at the time of application with a refund for adjustments to the valuation given later in the process.
What is the process?
The process begins when the executor applies to the Ministry of Finance for a “Certificate of administrator of assets with (or without) will”. The Ministry of Finance would issue a “Certificate of Appointment of Trustee of Assets” receipt. Within 90 days of initiating this application, the executor must file a detailed “Estate Information Statement” with estate administration fees, along with the “Probate Certificate” application. The valuation of the assets included in the inheritance would form part of this document. If the value of the assets is an estimate because the actual value takes time to calculate, the executor or trustee would have 6 months to confirm the actual value of the assets in question. If the assets were revalued, there would be a new revised presentation within 30 days.
Four-year rule for audits
The Ministry of Finance can audit, inspect and reassess after the estate taxes became payable, which would be the date the certificate was issued. If no information was submitted, the Ministry of Finance can also conduct an audit. An executor can object within 6 months of the reassessment by providing supporting details. In the case of income tax, the Settlement Certificate may be issued to stop any further audit or action by the CRA. In the case of the Wealth Administration Tax, said certificate will not be issued. This means that reassessment can occur indefinitely.
sanctions
Failure to comply may result in an enforcement order or restraining order. Fines can range from a minimum of $1,000 to a maximum of 2 times the value of the estate management tax. There may also be imprisonment for up to 2 years in addition to or as an alternative to a fine.
How can you best plan your estate?
Executor and agent-to-executor selection are more important than in the past. An agent of the executor is someone who does the legwork for the executor, but the executor has the final responsibility for what is presented. This is similar to outsourcing some of the executor’s work to another party. Communication with the executor and from agent to executor about responsibilities is more important, especially with regards to time and accuracy. Record keeping will be more important as it will serve as the basis for arriving at these required valuations. The records must be accessible and updated so that they can be used at any time. There is the possibility of Errors and Omissions Insurance that can be used as a safeguard against carelessness.
Wills and powers of attorney must be kept up to date. An annual review of these documents can be useful if there are frequent changes. Keep a net worth statement available as a snapshot of your entire estate. Specific details can be investigated if necessary. If there are accounts at many financial institutions, it may make sense to consolidate them to avoid losing information. Contact information for accountants and tax preparers who may have access to the total value of the estate would also be helpful.
