Penalties for Underpaying Estate Administration Tax in Ontario

You may be an estate trustee who has just realized that a value in the paperwork was off, an asset was missed, or a filing deadline slipped by. It is natural to worry about whether you are now personally on the hook.

This article explains the consequences Ontario sets out for filing and valuation problems, how long the Ministry of Finance can look back, and how mistakes are corrected. Every estate is different, so use it as a map and not as advice on your own situation.

How the tax and the return fit together

The Estate Administration Tax is paid as a deposit when the application for an estate certificate is filed with the Superior Court of Justice. The deposit becomes the tax once the certificate is issued.

The estate pays the tax, not the estate representative personally. The filing duties and penalties described below, however, are aimed at the representative.

After the certificate is issued, the representative must file an Estate Information Return with the Ministry of Finance within 180 calendar days. The return lists each asset and its value on the date of death, and it must be filed even if the estate value is $0.

Penalties for not filing or for misleading statements

The penalties set out for the Estate Information Return apply to failing to file it or to making false or misleading statements in it. An estate representative who fails to file the return, or who makes false or misleading statements, may face the following.

• A fine of at least $1,000 and up to twice the tax payable by the estate.
• Up to two years' imprisonment.
• Both a fine and imprisonment.

Where a genuine valuation mistake ends and a misleading statement begins depends on the facts. If you are worried about which side of that line you are on, a lawyer can review it with you.

How long the Ministry can look back

The Ministry of Finance may assess or reassess the tax within four years after it became due. The tax became due on the day the certificate was issued.

That time limit does not protect everyone. The Ministry may reassess at any time if a return was not filed or if there was misrepresentation or fraud.

If you receive a Notice of Assessment and disagree with it, a Notice of Objection must be filed within 180 days. Keep your records for four years.

Fixing a valuation error or newly found assets

Assets are valued at fair market value on the date of death. Real estate is valued at its appraised value on that date, even if it later sells for more or less. Values must be supported by documents such as account statements or an appraiser's opinion.

A common source of error is deducting the wrong things. Only mortgages, liens and similar encumbrances on real property can be deducted, and only from that property's value. Funeral expenses, legal fees, credit card debt, lines of credit and real estate commissions cannot be deducted from the estate value.

If you find new assets, or learn that the return was incorrect or incomplete, you must file an amended Estate Information Return within 60 days of becoming aware of it. Any extra tax is then payable.

If you overpaid, a refund is possible only in limited cases. The representative must have filed an Estate Information Return within four years of the certificate, and must ask the Ministry of Finance for the refund within 12 years of the certificate or within 2 years of a Notice of Assessment.

What to do next

• Find the date the certificate was issued, because the filing and reassessment clocks run from it.
• Gather account statements, appraisals and land records that support each date-of-death value.
• Compare your return against the assets actually found, and note any that were missed or valued wrongly.
• If something is wrong, prepare an amended return promptly, keeping the 60-day period in mind.
• Keep all records for four years.
• Speak with a lawyer or accountant before you file anything if you are unsure whether an error was a mistake or something more.

Frequently asked questions