Getting a House Appraised for Estate Purposes in Ontario

As an estate trustee, one of your first jobs is working out what the house was worth when the person died. That one number affects the tax paid to get a certificate, the tax on the final income tax return, and what each beneficiary receives or pays in a buyout.

This article explains where the value is used, what to ask of an appraiser in general terms, and which mistakes cause trouble. The right type of valuation for your estate depends on the facts, so confirm the details with a lawyer or accountant.

Why the house value matters

There are three main uses. The first is probate tax. For certificate applications made on or after January 1, 2020, there is no Estate Administration Tax on estates valued at $50,000 or less. Above $50,000, the tax is $15 for every $1,000 of estate value (or part of $1,000), with the value rounded up to the nearest thousand.

The second is income tax. At death, a person is treated for income tax purposes as having sold all their property just before death, and that deemed disposition can create a capital gain or loss on the home. The third is distribution: beneficiaries who want to split the value, or buy each other out, need a figure they trust.

How the value is used for Estate Administration Tax

Ontario real estate is valued less encumbrances on it, such as a mortgage, collateral mortgage or lien. Other debts such as lines of credit, credit cards and loans cannot be deducted, and neither can funeral expenses or lawyer's fees.

• Jointly owned assets that pass automatically to the surviving owner or owners are left out of the estate's value.
• Real estate outside Ontario is not counted. For resealing or ancillary certificates, only assets located in Ontario are used.
• If the estate is valued at $150,000 or less, the small estate process using Form 74.1A may be available, though estates over $50,000 and up to $150,000 still pay the tax.

The estate trustee must file an Estate Information Return within 180 calendar days after the certificate is issued. If new assets are found or an estimated value turns out wrong, an amended return is due within 60 calendar days. Failing to file, or making false or misleading statements, can lead to a fine of at least $1,000 and up to twice the tax payable, imprisonment for up to two years, or both. Keep your valuation records together and confirm the figures with a lawyer or accountant before you file.

How the value is used for income tax

Where the home goes to someone other than a spouse or common-law partner, the deemed disposition must be reported on Schedule 3 of the final return, and all or part of the gain may be exempt as a principal residence, designated on Form T1255. How the gain is worked out on your particular home depends on the facts, so it is worth confirming with an accountant.

If the property passes to a spouse or common-law partner, or to a spousal trust, and becomes locked in for them no later than 36 months after the date of death, the gain is deferred and tax is postponed until the survivor sells or is deemed to sell. The legal representative can elect out of that rollover on the final return, property by property, and if they do, the cost to the spouse, partner or trust is the fair market value at death. That election is a good example of when a lawyer or accountant should be involved before the return is filed.

Where the owner was not a resident of Canada for the whole time they owned the property, the period of non-residence may reduce or eliminate the principal residence exemption. Confirm current CRA reporting instructions before filing.

Choosing who to hire

Estate trustees often ask what valuation will be accepted. A real estate agent's opinion of value and a formal written appraisal are different things, and which one suits your situation depends on the size of the estate, whether beneficiaries disagree, and how large the tax numbers are. Ask your lawyer or accountant what they want to see.

• Hire someone independent of the beneficiaries and of any buyer.
• Ask for the valuation date to be the date of death, stated in the report.
• Ask the appraiser about experience with similar homes in the same area.
• Give access to the home, the survey if you have one, and a list of renovations.
• Ask for a written report, not only a phone number, and keep it with the estate records.
• Tell the appraiser the report is for estate and tax purposes so the right approach is used.

If the house is in the deceased's name alone, the estate trustee deals with it through the land registry process, including a transmission application. Only an estate trustee has legal authority to manage the estate, including selling the home, so arrange access to the house through the trustee.

Practical steps and cautions

• Do not distribute sale proceeds before getting a clearance certificate, since a representative who does can be personally liable for unpaid tax up to the value of the assets distributed.
• A clearance certificate is requested on Form TX19.
• Tell the insurer in writing if the house will be empty, because a house left vacant after a death can be a change material to the risk.
• Keep every valuation, email and invoice in one estate file.

If beneficiaries dispute the value, a second independent appraisal or a negotiated midpoint can save time. Before you file anything with the government, have a lawyer or accountant look over the figures.

Frequently asked questions