Estate Administration Tax When the Deceased Owned a Business

If you are the estate trustee for someone who ran a business on their own, you may be wondering how much of that business counts when the court calculates estate administration tax.

This article walks through how Ontario treats business interests for the tax, what can and cannot be subtracted, how to support your numbers, and what to do if you later find assets you missed. It explains how things generally work; your own estate may have details that call for advice.

How the tax value is worked out

Estate administration tax is payable by the estate to the Crown in right of Ontario once an estate certificate is issued. The value of the estate for this purpose is the value of the property you must disclose to the court, less the actual value of encumbrances on real property.

Before a grant is issued, the applicant must give the registrar a sworn or affirmed statement of the total value of all the property that belonged to the deceased at the time of death. For a sole proprietor, that statement is where the business shows up.

Estates of $50,000 or less pay no tax, and above that the rate is $15 for each $1,000 (or part of $1,000) of value over $50,000. Values are rounded up to the nearest $1,000 before calculating.

Business interests and business property

Ontario's guidance lists business interests as part of the estate value, along with insurance proceeds payable to the estate. Bank accounts, including those held at foreign banks, and investments are also included. A business bank account in the deceased's own name therefore falls within the estate.

Property held in another person's name can still be included. If the deceased used someone else's name for a business asset, it is worth getting advice before deciding to leave it out.

The guidance we rely on does not give separate rules for inventory, tools, equipment or similar items. What it does give is the general approach: include what the deceased owned at death, at fair market value. How a particular piece of equipment or a stock of goods should be described and valued depends on the facts, and an accountant or lawyer can confirm it.

• Business interests count toward the value.
• Business and personal bank accounts in the deceased's name count, including foreign accounts.
• Insurance proceeds payable to the estate count.
• Assets the deceased owned earlier but no longer owned at death are excluded.
• Real estate outside Ontario is excluded.

What you can and cannot deduct

This is where business estates often surprise trustees. Only encumbrances on real property reduce the estate value. If the business premises are Ontario real estate, a mortgage or lien on that property can reduce its value, based on the appraised value at the date of death.

Other debts do not reduce the value. The guidance says loans and interest, credit card debt, unregistered loans and lines of credit cannot be deducted, nor can funeral expenses, lawyer fees or real estate commissions.

Valuing and documenting the business

The value to use is fair market value at the date of death, supported by documents such as statements or appraisals. For real estate, that means the appraised value at the date of death.

For a business, a professional valuation or the accountant's year-end figures may help show how you arrived at a number. Whether one is needed for your estate depends on the size and nature of the business. Keep whatever you rely on, because estate representatives must keep records that allow the tax to be accurately determined.

Filing, estimates and fixing mistakes

The tax is paid as a deposit when you apply to the Superior Court of Justice, and it becomes the tax once the certificate is issued. If the true value is not yet known, the deposit can be based on an estimate. In that case you give an undertaking to file a sworn statement of the actual value and pay any shortfall within six months.

An Estate Information Return must be filed within 180 calendar days after the certificate is issued, even if the estate value is $0. If you used an estimate, you amend the return within 60 days after the actual value is shared with the court.

If you find business property after the certificate issues, a sworn statement of its value must be filed with the registrar within six months, and tax on it is payable when the statement is delivered. Giving false or misleading information, or failing to file, is an offence, although a reasonable-diligence defence exists.

What to do next

• List every business asset, account and policy the deceased owned in their own name at death.
• Separate Ontario real estate and its registered mortgages from other debts, since only the former can be deducted.
• Gather statements, appraisals and accountant records supporting the date-of-death values.
• Decide whether you will use an estimate and, if so, diarize the six-month deadline.
• Diarize the 180-day return deadline from the date the certificate is issued.
• Ask a lawyer or accountant to confirm how inventory, equipment and other business items should be reported.

Frequently asked questions