- A mortgage, collateral mortgage or lien registered against Ontario real property in the estate can be deducted from that property's value.
- Funeral costs, legal fees, credit card debt, vehicle debt and unregistered loans do not reduce the value used for the tax.
- Once the value is worked out, the tax is $15 for every $1,000 (or part of $1,000) over $50,000 for applications made on or after January 1, 2020.
You are the executor, and the estate includes a house in Ontario that still has a mortgage on it. Before you apply for probate, you need to know what value to put on the application, because the Estate Administration Tax is based on it. The natural question is whether the mortgage lowers that value.
For a mortgage registered against Ontario real property, it generally does. The rules are narrower than many people expect, though, and most other debts do not count. This article walks through what can be deducted, what cannot, and how to be ready to back up your numbers.
The short answer: registered debts on real property can come off
A mortgage, collateral mortgage or lien that is registered against real property forming part of the estate can be deducted from that property's value. The estate's value for the tax includes Ontario real estate at its appraised value on the date of death, less encumbrances such as mortgages or liens.
As a simple illustration, take the house's appraised value at the date of death and subtract the registered mortgage. The result is the value of that property for the tax. For an application on or after January 1, 2020, nothing is payable on the first $50,000, and the tax is $15 for every $1,000 (or part of $1,000) above that. The value is rounded up to the nearest thousand dollars first. Your own numbers will differ, and other assets may be added.
How the value is built before any deduction
Assets are valued at fair market value at the time of death. Real property is valued at its appraised value at the date of death, even if it later sells for more or less shortly afterward. So the sale price a few months later does not replace the date-of-death figure.
The mortgage deduction applies to the property it is registered against. The estate's other assets are still added in. These include bank accounts (even at foreign banks), investments, vehicles and vessels wherever located, property held in another person's name, business interests and other property wherever situated.
What does not reduce the value
Only encumbrances on real property can be deducted. The following do not lower the estate's value for the tax:
- Funeral expenses
- Lawyer's fees
- Loans and interest, including unregistered loans and lines of credit
- Vehicle debt
- Credit card debt
- Real estate commissions
These debts still matter, because the estate trustee is responsible for paying taxes, bills and other debts as part of winding up the estate. They just do not change the figure used to calculate the tax.
Assets that never enter the calculation
Some property is left out entirely, so there is nothing to deduct a mortgage from. The comparison below shows common cases.
| Situation | Effect on the estate's value |
|---|---|
| Insurance paid to a named beneficiary | Left out |
| Insurance payable to the estate | Included |
| Jointly owned assets passing automatically to a surviving owner | Left out |
| Share of a tenant in common | Included if probate is sought, because it becomes part of the estate |
| RRSPs, RRIFs, TFSAs with a named beneficiary or designation | Left out |
| RRSPs, RRIFs, TFSAs where the estate is beneficiary | Included |
| Real estate outside Ontario | Left out |
Ownership matters here. When a joint tenant dies, the surviving co-owners inherit the deceased's share. If a mortgaged home was held that way, it may not be part of the estate's value at all, which is worth confirming with a lawyer before you fill in the application.
What to do next
Estate representatives must be able to support asset values with documents such as statements or an appraiser's opinion of value. Form 74A asks for the total value of real property, the total value of personal property and the total estate value.
- Get an appraisal of the house as of the date of death.
- Get a mortgage statement showing the balance at death and confirm the mortgage is registered against the property.
- List all other assets and note which pass outside the estate.
- Keep every supporting document together.
- Ask a lawyer or accountant if ownership, a second property or a business interest makes the picture unclear.
Frequently asked questions
Does a line of credit secured on the house count as a mortgage?
The rules allow deduction of a mortgage, collateral mortgage or lien registered against the real property. Unregistered loans and lines of credit do not reduce the value. Whether a particular secured line of credit is registered is a question for the title records and a lawyer.
Can I deduct the funeral bill from the estate's value?
No. Funeral expenses do not reduce the value used for the tax. They are still a legitimate estate debt that you deal with when winding up the estate.
Who pays the tax, me or the estate?
The tax is paid by the estate, not personally by the estate representative. It is paid as a deposit when the probate application is filed.
What if I estimated the value and the real number differs?
Additional tax found to be owing can be paid to the Superior Court of Justice or the Ministry of Finance, with an affidavit setting out the revised value at the time of death. If an estimate was used on the application, an amended Estate Information Return is due within 60 calendar days after the actual value is given to the court.
Sources
- Ontario.ca – Administering estates — ontario.ca
- Ontario.ca – Estate Administration Tax — ontario.ca
- Ontario.ca – Co-ownership arrangements — ontario.ca
- Ontario.ca – Apply for probate of an estate — ontario.ca
Links go to official government, court and regulator pages. The law changes — confirm you are reading the current version.
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