Can You Avoid Estate Administration Tax on a Joint Account in Ontario?

Many people ask whether putting a bank account in joint names, or naming a beneficiary on an investment, will avoid Ontario's probate tax. Sometimes it does reduce the value of what goes through the estate. But the rules are narrower than people expect, and a quick fix can cause real problems for the family later.

This article explains how the tax is calculated, which assets count, which are generally left out, and why joint accounts carry risks beyond the tax. If you are the person administering an estate, or someone planning ahead, a lawyer can look at your specific accounts.

How the tax works

For estate certificates applied for on or after January 1, 2020, there is no tax if the estate is $50,000 or less. Above that, the rate is $15 per $1,000 (or part). How that rate applies to your estate's value is worth confirming with a lawyer.

An Estate Information Return is due within 180 calendar days after the certificate is issued, even if no tax is payable. Failing to file it, or making false statements, can bring a fine of at least $1,000 and up to twice the tax payable, and possibly up to two years in prison. Because the penalties are serious, the value should be reported carefully.

What counts and what is left out

The estate value includes Ontario real estate (less mortgages and liens), bank accounts, investments, and RRSPs, RRIFs and TFSAs that have no beneficiary designation. It excludes jointly owned assets that pass automatically to the surviving owner, and assets with a named beneficiary, such as insurance, RRSPs, RRIFs, TFSAs and registered pension plans.

Debts do not reduce the value as much as people hope. Funeral costs, lawyer fees, loans and credit card debts cannot be deducted. Only mortgages on real property can.

Why a joint account is not automatically safe

On paper, a joint account that passes to the surviving owner is left out of the estate value. The difficulty is that a joint account is not always meant as a gift. A parent may add an adult child to an account only for convenience, to help pay bills, while intending the money to be shared equally under the will. When that is the case, other beneficiaries may argue that the survivor holds the money for the estate rather than for themselves.

How this applies depends on your situation, so it is worth confirming with a lawyer. That depends on the evidence, and these disputes can be expensive and can damage family relationships. Because the outcome turns on facts, a lawyer should be consulted before relying on a joint account to avoid the tax.

• The tax saved may be small compared with the cost of a dispute.
• A joint holder may be able to access or take the money, whatever the original intention was.
• Creditors or a joint holder's own problems can put the account at risk while the owner is alive.
• Families can end up fighting over what the account owner intended.

Named beneficiaries: a different kind of risk

A named beneficiary on insurance, an RRSP, a RRIF, a TFSA or a pension keeps that asset out of the estate value. This is generally more reliable than a joint bank account because the intention is written on the form. But it is only as good as the form. If an RRSP, RRIF or TFSA has no beneficiary designation, it is counted in the estate value.

Naming a beneficiary also has income tax effects. For example, an RRSP's value is generally included in income on the final return, whether or not a beneficiary is named, unless relief for a qualifying survivor applies. A designation can also upset a fair division of the estate if other family members expected an equal share.

What to do next

• List every account and asset and note how each is held: alone, jointly, or with a named beneficiary.
• Collect any account opening documents or notes showing why a joint account was set up.
• Check that beneficiary designations are current and match what the owner wanted.
• Add up the estate value using the counted and excluded categories before applying for the certificate.
• Diarize the Estate Information Return, which is due within 180 days after the certificate is issued.
• Talk to a lawyer before changing account ownership or if family members disagree about a joint account.

Frequently asked questions