- Mortgages, liens and similar encumbrances on real property can be deducted, but only from that property's value.
- Funeral costs, legal fees, credit card debt and lines of credit cannot be deducted from the estate value.
- For certificates applied for on or after January 1, 2020, there is no tax on the first $50,000, and above that the tax is $15 for every $1,000, or part of $1,000.
If the estate includes a home with a mortgage, you may be wondering whether the mortgage lowers the Estate Administration Tax. In Ontario, it can, but the rule is narrower than many people expect, and most other debts do not count.
This article explains what can be deducted, what cannot, how to value the property, and how the tax is worked out, with an example from Ontario's own guidance. Details of a particular estate can change the answer, so a lawyer or accountant can confirm your situation.
What the tax is based on
The Estate Administration Tax is based on the value of all assets the deceased owned at the time of death. That includes Ontario real estate (less mortgages or liens on it), bank accounts, investments, vehicles, business interests and insurance paid to the estate.
The tax is paid as a deposit when the application for an estate certificate is filed with the Superior Court of Justice, and it becomes the tax once the certificate is issued. The estate pays it, not the estate representative personally.
What you can deduct, and what you cannot
Only mortgages, liens and similar encumbrances on real property can be deducted, and only from that property's value. A mortgage on one property cannot be used to reduce the value of a different asset.
| Can be deducted | Cannot be deducted |
|---|---|
| Mortgage on real property, from that property's value | Funeral expenses |
| Lien or similar encumbrance on real property, from that property's value | Legal fees |
| Loans and interest, vehicle debt | |
| Credit card debt and lines of credit | |
| Unregistered loans and real estate commissions |
Lines of credit are on the list of items that cannot be deducted. How this applies to a particular debt depends on your situation, so it is worth confirming with a lawyer or accountant rather than assuming.
Valuing the property
Assets are valued at fair market value on the date of death. Real estate is valued at its appraised value on the date of death, even if it later sells for more or less. Values must be supported by documents such as account statements or an appraiser's opinion.
So the starting figure is the date-of-death value, not the eventual sale price. The mortgage balance owing is then taken off that property's value.
How the tax is worked out
When a home has a mortgage registered against it, the mortgage is deducted from that home's value, and the result is what goes into the estate value for the tax.
To calculate the tax, round the estate value up to the nearest $1,000. Ontario's own example is a $240,000 estate: the first $50,000 is taxed at $0 and the remaining $190,000 at $15 per $1,000, so the tax is $2,850. Using the same method, a $500,000 estate pays 450 x $15 = $6,750.
Estates worth $50,000 or less pay no Estate Administration Tax, but if an estate certificate is issued, the estate representative must still file an Estate Information Return. In some cases an applicant can pay tax on an estimated value that they swear or affirm in the application, and must then file a sworn statement of the total value and pay any balance owing within six months after giving the undertaking.
If the home was owned jointly and passes automatically to the other owner on death, it is not included in the estate value for the tax at all. Real estate located outside Ontario is also not included.
Filing and getting it right
The representative must file an Estate Information Return with the Ministry of Finance within 180 calendar days after the certificate is issued. It lists each asset and its value on the date of death. If new assets are found, or the return was incorrect, an amended return is due within 60 days of becoming aware of it, and any extra tax is payable.
The penalties for failing to file, or for false or misleading statements, include a fine of at least $1,000 and up to twice the tax payable, and possibly imprisonment. The Ministry may reassess the tax within four years after it became due, which is the day the certificate was issued, but it may reassess at any time if a return was not filed or if there was misrepresentation or fraud.
- Get an appraisal of the home as of the date of death.
- Get a current mortgage statement showing the balance at the date of death.
- Confirm that the mortgage or lien is registered against the property.
- Keep records of every value, since records must be kept for four years.
- If you cannot pay the tax when filing, a judge can be asked for an order to pay it later.
Frequently asked questions
Can I deduct the mortgage from the whole estate?
No. Mortgages and similar encumbrances can be deducted only from the value of the property they are registered against.
Can I deduct funeral costs or legal fees to lower the tax?
No. Funeral expenses, legal fees, loans and interest, vehicle debt, credit card debt, lines of credit, unregistered loans and real estate commissions cannot be deducted from the estate value.
What if the house is worth more when it sells?
Real estate is valued at its appraised value on the date of death, even if it later sells for more or less.
What is the tax rate?
For certificates applied for on or after January 1, 2020, there is no tax on the first $50,000. Above that, it is $15 for every $1,000, or part of $1,000, which is 1.5%.
Sources
- Ontario.ca – Estate Administration Tax — ontario.ca
- Ontario.ca – Calculating the Estate Administration Tax — 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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