Are Debts and Mortgages Deducted for Probate Tax in Ontario?

Many people assume that if the deceased owed money, the debts come off the estate before probate tax is calculated. In Ontario, that is true for only a narrow category of debt.

Below is how the Estate Administration Tax treats mortgages and other debts, how the estate value is set, and what to do if you cannot pay the tax at filing. It is general information, and a lawyer or accountant can confirm how it applies to your estate.

The rule on deductions

Only mortgages, liens and similar encumbrances on real property can be deducted, and only from that property's value. A mortgage on one property does not reduce the value of the bank accounts, investments or any other property.

For Ontario real estate, the tax is based on its value less mortgages or liens on it.

What can and cannot be deducted

The estate still has to deal with these debts. Estate trustees pay taxes, bills and other debts as part of winding up the estate. They just do not lower the value used for the tax.

How the estate value is set

The tax is based on the value of all assets the deceased owned at the time of death, including Ontario real estate, bank accounts, investments, vehicles, business interests and insurance paid to the estate. Assets are valued at fair market value on the date of death.

Real estate is valued at its appraised value on the date of death, even if it later sells for more or less. Values must be supported by documents such as account statements or an appraiser's opinion, and a business may need a professional appraiser.

Some assets are left out entirely, including jointly held assets that automatically pass to the other owner and real estate outside Ontario.

For estates over $50,000, the tax is $15 for every $1,000, or part of $1,000, above the first $50,000. The value is rounded up to the nearest $1,000. Ontario's own example is a $240,000 estate: the first $50,000 is taxed at $0, the remaining $190,000 is taxed at $15 per $1,000, and the tax is $2,850.

If you cannot pay or do not yet know the value

The tax is paid when the application is filed, by certified cheque or bank draft payable to the 'Minister of Finance'. Two options exist in some situations.

• An applicant can sometimes pay on an estimated value that they swear or affirm in the application, and must undertake to file a sworn statement of the total value and pay any balance within six months.
• An applicant who cannot pay at filing can ask a judge for an order to pay later, under section 4(1) of the Estate Administration Tax Act, 1998.

If new assets turn up after the certificate is issued, an amended Estate Information Return is due within 60 days of becoming aware, and any extra tax is payable.

What to do next

• List every asset and its date-of-death value, with supporting documents.
• Identify which mortgages or liens are registered against which real property.
• Separate out items that are excluded, such as jointly held assets that pass automatically.
• Keep a separate list of funeral costs, loans and credit card balances, which the estate must handle but which do not reduce the tax value.
• Speak with an estate lawyer or accountant if the estate includes a business or property outside Ontario.

Frequently asked questions