Ontario has introduced a new Estate Administration Tax (EAT) beginning in 2015. The gist of the new tax is that reporting requirements will be much stricter and will have to be done more quickly than in the past. Reporting is also more complicated and the penalties more onerous, so dealing with estates will be less fun than in the past.
The estate administration tax rate ranges from 1% to 1.5%, with a maximum of 1.5% in the range of $5 million or more for estate value. 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 designated beneficiary, real estate outside of Ontario, and CPP death benefits are some examples. This tax is generally paid at the time of application with a refund for assessment adjustments 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 property administrator with (or without) a will.” The Ministry of Finance would issue a receipt of “Certificate of Designation of Trustee of Assets”. Within 90 days of the start of this application, the executor must file a detailed “Statement of Estate Information” with estate administration fees, along with the application for the “Probate Certificate.” 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 estate taxes have become due, which would be the date the certificate was issued. If no information was submitted, the Ministry of Finance may 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 the reassessment can occur indefinitely.
sanctions
In the event of non-compliance, this may result in an enforcement order or a restraining order. The fines can range from a minimum of $1,000 to a maximum of 2 times the value of the estate administration tax. There may also be imprisonment of up to 2 years in addition to or as an alternative to a fine.
How can you best plan for your estate?
Selection of executor and agent to executor are more important than in the past. An executor’s agent is someone who does the legwork for the executor, but the executor has final responsibility for what is filed. This is similar to outsourcing part of the executor’s work to another party. Communication with the executor and from agent to executor about responsibilities is more important, especially with regard to timeliness and accuracy. Record keeping will be more important as it will serve as the basis for arriving at these required assessments. The records must be accessible and up-to-date so that they can be used at any time. There is the possibility of an insurance against errors (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 helpful if there are frequent changes. Keep a statement of net worth available as a snapshot of all assets. 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 full value of the estate would also be helpful.