Is a Mortgage Deducted From Estate Administration Tax in Ontario?

If the home in the estate still has a mortgage, you may wonder whether the tax is calculated on the full value of the house or only on what the family actually owns. The answer matters because Ontario's Estate Administration Tax is based on the value of the estate's assets at the time of death, with real property valued at its appraised value at the date of death.

This article explains how the mortgage is treated, which other debts are not deducted, and how jointly owned property fits in. It then walks through how the calculation works for a home and gives a list of steps to take next.

The short answer: yes, if it is registered on Ontario real estate

The estate's value includes Ontario real estate, valued at its appraised value on the date of death, less encumbrances such as mortgages or liens. A mortgage, collateral mortgage or lien registered against real property that is part of the estate can be deducted from that property's value.

The word registered matters. The deduction is for encumbrances on the real property, so you should be ready to show the mortgage or lien is registered against it.

Debts that are not deducted

Only encumbrances on real property can be deducted. The following do not reduce the estate's value:

• Funeral expenses
• Lawyer's fees
• Loans and interest
• Vehicle debt
• Credit card debt
• Real estate commissions
• Unregistered loans and lines of credit

This often surprises trustees. A large credit card balance or a line of credit may be a real claim against the estate, but it does not lower the value used to calculate the tax. The tax and the debts of the estate are separate questions.

How the home is valued

Assets are valued at their fair market value at the time of death. Real property is valued at its appraised value at the date of death, even if it sells for more or less shortly after the death. So if the house sells for less than the appraisal a few months later, the lower price does not change the figure you use.

Estate representatives must be able to back up asset values with supporting documents, such as statements or an appraiser's opinion of value. For a house, that usually means an appraisal as of the date of death, plus a mortgage statement or the registered document showing the debt.

A worked example

Picture an Ontario home that has a registered mortgage. You start with the home's appraised value on the date of death and subtract the registered mortgage, and the result is what the home contributes to the estate's value. You then add the other property that passes through the estate, such as bank accounts and investments.

The total is rounded up to the nearest thousand dollars. No tax is payable on an estate worth $50,000 or less, and above $50,000 the tax is $15 for every $1,000 (or part thereof) over $50,000. Because the mortgage lowers the home's counted value, it lowers the amount over $50,000 and so lowers the tax. Your own figures will differ, and a lawyer or accountant can confirm the calculation for your estate.

Jointly owned and out-of-province property

Not every property is part of the taxable estate. Jointly owned assets that pass automatically to the surviving owner(s) are left out of the estate's value. When a joint tenant dies, the surviving co-owners inherit the deceased's share.

Tenants in common are different. A tenant in common's share does not pass automatically to the other owners. It becomes part of their estate, so it counts toward the estate's value if probate is sought.

Real estate outside Ontario is also left out of the estate's value. Whether a property is held jointly or as tenants in common changes the result, so confirm which applies before you calculate.

What to do next

• Order or obtain an appraisal of the home as of the date of death.
• Get the registered mortgage or lien details and a statement showing the balance.
• Confirm from the title whether the home was held jointly or as tenants in common.
• List other debts separately, remembering they do not reduce the value for the tax.
• Keep your supporting documents together so you can back up asset values, and keep the records supporting the Estate Information Return for four years.

If the title is unclear, there are several mortgages or liens, or the property is partly outside Ontario, a lawyer can confirm how the deduction applies.

Frequently asked questions