Can You Deduct a Mortgage When Calculating Probate Fees in Ontario?

If you are the executor of someone who owned a mortgaged home in Ontario, one of the first questions is how much the court will charge to issue the certificate. The charge is called estate administration tax, and many people assume it is based on what the house could sell for.

The answer is more favourable than that, but it has limits. This article explains how a mortgage affects the calculation, which other debts do not, and how the tax and the required filings work.

The short answer: registered encumbrances come off the real estate

Ontario counts real estate in the estate value less encumbrances such as mortgages or liens. Put simply, the tax on a mortgaged Ontario home is based on equity, meaning the value of the home less the registered encumbrance, rather than its full value.

The word registered matters. The deduction is for encumbrances on the real property, such as a mortgage or lien. Unregistered loans and lines of credit are on the list of items that cannot be deducted. If you are unsure whether a particular loan is registered against the title, a lawyer can confirm that from the property records.

What can and cannot be deducted

Many executors expect debts in general to reduce the tax. Apart from encumbrances on real property, the common debts and costs of winding up an estate do not.

What else counts toward the estate value

The mortgage is only one piece. Assets counted include Ontario real estate (less encumbrances), bank accounts including foreign banks, investments, RRSPs, RRIFs and TFSAs without a beneficiary designation, vehicles and vessels wherever located, property held in another person's name, and insurance proceeds payable to the estate.

• Real estate outside Ontario is excluded from the value on a full estate certificate, although foreign bank accounts and vehicles or vessels anywhere are still counted.
• Assets held jointly that pass automatically to the surviving owner are excluded.
• Registered plans and insurance with a named beneficiary are excluded, as is the CPP death benefit.

The value is measured in Canadian dollars at the date of death.

How the tax is worked out

For applications made on or after January 1, 2020, the tax is $15 for every $1,000 (or part of $1,000) of estate value, with the first $50,000 exempt. The value is rounded up to the nearest thousand before the rate is applied, and the government's own example is a $240,000 estate owing $2,850. The older two-band structure with a $5 rate on the first $50,000 applied only to earlier applications and is now historic.

These figures are the estate value after allowable deductions, so the mortgage deduction changes the starting number. An estate valued at $50,000 or less pays no tax, but the representative must still apply for the certificate and file the return.

Timing, estimates and what to do next

The tax is paid as a deposit when you apply and becomes the tax once the certificate is issued. Form 74A asks for the total value of real property, personal property and the total estate value, and the guidance does not require a formal appraisal. In some cases tax can be paid on a sworn estimate, with a sworn statement of the actual value due within six months and any balance paid. If you cannot pay when applying, you can ask a judge for an order allowing later payment once assets are accessible.

• Get the current mortgage or lien details for the Ontario property, including what is registered on title.
• List every asset and mark which are joint, which have a named beneficiary and which fall into the estate.
• Do not subtract funeral costs, legal fees or credit card debts from the value.
• Diarize the Estate Information Return due date: 180 calendar days after the certificate is issued.
• Ask a lawyer to check your value before you swear it, because false or misleading statements can bring a fine of at least $1,000 and up to twice the tax, imprisonment, or both.

Frequently asked questions