Can You Deduct Funeral Costs From Estate Administration Tax?

You paid for the funeral, maybe the lawyer's bill and a few other costs, and now you are filling out the court application. It seems fair that these expenses should shrink the estate before tax is figured. Many trustees expect exactly that.

For estate administration tax in Ontario, the answer is mostly no. This article explains what can and cannot be subtracted, how the value is built, and what to do about the costs you have paid. How you recover those costs from the estate is a separate question worth raising with a lawyer.

What does not reduce the tax base

Ontario states that only encumbrances on real property reduce the estate value. Funeral expenses, lawyer fees, loans and interest, vehicle debt, credit card debt, real estate commissions, unregistered loans and lines of credit cannot be deducted.

This is built into the definition. The value of the estate is the value of the property disclosed to the court, less the actual value of encumbrances on real property. The sworn or affirmed statement given to the registrar covers the total value of all the property that belonged to the deceased at the time of death. Bills incurred at or after death do not appear in that formula.

How the value is actually built

Start with what the deceased owned at death. Ontario counts Ontario real estate at appraised value at the date of death, bank accounts including foreign banks, investments including TFSAs, RRSPs and RRIFs, vehicles and vessels wherever located, property held in another person's name, and business interests and insurance proceeds payable to the estate.

Some things are left out: assets owned earlier but not at death, jointly owned assets that pass automatically to the other owner, real estate outside Ontario, the CPP death benefit, and RPPs, RRSPs, RRIFs and TFSAs with a beneficiary designation. These exclusions are the legitimate ways the base is smaller, not funeral or legal bills.

Value is fair market value at the date of death, supported by documents such as statements or appraisals.

What the tax looks like

For applications made on or after January 1, 2020, an estate valued at $50,000 or less is exempt, and above that the tax is $15 for each $1,000 (or part of $1,000) over $50,000, with values rounded up to the nearest $1,000.

For example, an estate valued at $250,000 pays $3,000, and one valued at $75,000 pays $375. Ontario's own example is a $240,000 estate, which pays $2,850. A large funeral bill does not change those figures.

Older materials may mention a $5-per-$1,000 tier or a $1,000 exemption. That applied to applications from June 8, 1992 to December 31, 2019 and no longer applies to current applications.

Who pays, and what about your own outlay

The tax is paid by the estate. The estate representative is liable only in a representative capacity, and Ontario states the tax is not paid by the representative personally.

If you paid the funeral or legal bills from your own pocket, whether and how you are repaid from the estate is a different issue from the tax calculation. The tax rules above do not decide it. Keep receipts and speak with a lawyer about reimbursement and about how your accounts of the estate should show these payments.

What to do next

• Keep every receipt for funeral, legal and other costs you paid.
• List the deceased's assets and exclude those with a beneficiary designation or joint ownership.
• Collect date-of-death statements or appraisals.
• Identify mortgages or liens on real property, the only deductions allowed.
• Round the value up to the nearest $1,000 and apply the rate.
• Plan to file the Estate Information Return within 180 calendar days after the certificate issues, even if the value is $0.
• Ask a lawyer how to be reimbursed from the estate.

Do not subtract non-deductible costs to lower the figure. Giving false or misleading information is an offence carrying a fine of at least $1,000, up to two years' imprisonment, or both, though a reasonable-diligence defence exists.

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