Can You Deduct Debts From Estate Value for Probate Tax in Ontario?

Many people assume that paying off the deceased's debts lowers the probate tax. In Ontario, the rule is narrower than that.

This article explains which debts reduce the value used for the Estate Administration Tax and which do not, and how some assets fall outside the estate altogether.

The general rule

Only encumbrances on real property can be deducted. Debts do not come off the estate's value just because the estate owes them, even though an estate trustee must still pay taxes, bills and other debts.

The reason this matters is that the tax is calculated on the estate's value. For estate certificates applied for on or after January 1, 2020, no tax is payable on an estate worth $50,000 or less, and above $50,000 the tax is $15 for every $1,000 (or part thereof) of value over $50,000. The value is rounded up to the nearest thousand dollars when the tax is calculated. Applications made before January 1, 2020 used older rates: $5 per $1,000 (or part thereof) on the first $50,000 and $15 per $1,000 on the amount above $50,000.

Ontario real estate is valued at its appraised value on the date of death, less encumbrances such as mortgages or liens. Other assets are valued at their fair market value at the time of death. Real property keeps its appraised date-of-death value even if it sells for more or less shortly after the death.

What can and cannot be deducted

Assets that are not counted at all

Some assets never enter the calculation, which can lower the value without any deduction. Assets the deceased no longer owned at death, such as insurance paid to a named beneficiary, are left out. Jointly owned assets that pass automatically to the surviving owners are left out.

• RPPs, RRSPs, RRIFs and TFSAs with a beneficiary designation or declaration are left out.
• Where the estate is the beneficiary of an RRSP, RRIF or TFSA, it is included.
• Real estate outside Ontario, CPP death benefits, and RDSPs where the deceased was a subscriber but not a beneficiary are left out.

How a property is co-owned matters. When a joint tenant dies, the surviving co-owners inherit the deceased's share. A tenant in common's share does not pass automatically, so it becomes part of the estate and counts toward the estate's value if probate is sought. Counted assets also include bank accounts (including at foreign banks), investments, vehicles and vessels wherever located, property held in another person's name, business interests and other property wherever situated.

The type of certificate can also change what is counted. If the court issues a certificate limited to the assets in a specific will, only the assets in that will count toward the estate's value. For resealing, ancillary and foreign nominee certificates, only assets located in Ontario are used to calculate the tax.

Keeping support for your numbers

Estate representatives must be able to back up asset values with supporting documents, such as statements or an appraiser's opinion of value. If the value on the return later proves wrong, an amended return is due within 60 days of becoming aware of it.

How the tax is paid and reported

The Estate Administration Tax is charged only when an estate certificate is applied for and issued, so if no certificate is applied for or issued, no tax is owed. The tax is paid as a deposit when the probate application is filed, and once the certificate is issued the deposit becomes the tax. It is paid by the estate, not personally by the estate representative.

The estate representative must file an Estate Information Return with the Ministry of Finance within 180 calendar days after the estate certificate is issued. This is required even when the estate is worth $50,000 or less and no tax is owed. If a filing deadline falls on a weekend or holiday, it moves to the next business day. Filing online is recommended, though the return can also be filed by mail, courier, fax or in person. The records supporting the return must be kept for four years.

Getting the return wrong has consequences. An estate representative who fails to file the return, or who makes false or misleading statements, may be fined at least $1,000 and up to twice the tax payable by the estate, imprisoned for up to two years, or both.

Since April 1, 2021, a small estate for probate purposes is one valued at $150,000 or less. Small estates still pay Estate Administration Tax on value over $50,000, up to the $150,000 cap.

What to do next

• List each asset and note whether it passes outside the estate.
• Identify any mortgage or lien registered on Ontario real property.
• Gather statements and appraisals for every asset you include.
• Speak with a lawyer or accountant before relying on a deduction you are unsure about.

Frequently asked questions