Probate for a Business or Shares Owned by the Deceased in Ontario

If the person who died owned a private company, shares or a partnership interest, the estate trustee faces two questions at once: what is the business worth for tax purposes, and who keeps it running in the meantime. Both can feel urgent, and both are easier when you take them one step at a time.

This article explains how business assets are treated when you apply for probate in Ontario, how the Estate Administration Tax is worked out, and what to confirm with a lawyer or accountant before you act.

Does a business interest mean the estate needs probate?

Ontario guidance says that if the deceased owned real property or assets held by a financial institution, the estate normally has to be probated. Probate is not always required, though. Assets held jointly or with a designated beneficiary pass according to how they are owned or designated.

Whether a particular business interest needs a certificate depends on how it was held, what the company documents or any partnership agreement say, and what the other owners, lenders and institutions require. A lawyer can read those documents and tell you.

How business assets are valued for tax

For applications made on or after January 1, 2020, no Estate Administration Tax is payable if the estate is worth $50,000 or less. Above that, the tax is $15 for each $1,000 or part of $1,000 by which the value exceeds $50,000, and the value is rounded up to the nearest thousand. In practice, that means only the amount above $50,000 is taxed, and a value that falls part-way into a thousand is treated as the next full thousand.

Private company shares and business interests are valued at fair market value at the date of death. The representative should be able to support each value with documents such as statements or an appraiser's opinion. Because a private company has no market price, an appraisal is often the practical way to support the number.

• Business interests and other property worldwide, such as bank accounts, investments and vehicles, are included in the value.
• Real estate outside Ontario is not included.
• Ontario real estate is valued less encumbrances such as a mortgage or lien.
• Unsecured debts such as credit card balances, loans and lines of credit cannot be deducted.

Estimates, returns and penalties

The tax is paid as a deposit when the application is filed and becomes payable when the certificate is issued. The estate pays it, not the representative personally. If the deposit is based on an estimated value, which is common when a business has not yet been appraised, the applicant must undertake to file a sworn statement of the actual value and pay any additional tax within six months.

An Estate Information Return must be filed with the Ministry of Finance within 180 calendar days after the certificate is issued, even if no tax is payable. An amended return is due within 60 days of becoming aware that information is incomplete or inaccurate.

Failing to file the required information, or making false or misleading statements, is an offence, with a fine of at least $1,000, imprisonment of up to two years, or both. It is not an offence if the person did not know, and could not reasonably have known, that a statement was false. That is a good reason to document how each value was reached.

If the tax turns out to be overpaid, a refund request goes to the Ministry of Finance by filing or amending the Estate Information Return. If the certificate has not yet been issued, a deposit refund is requested from the Superior Court of Justice office where the application was filed.

Who can run the business in the meantime?

Before a certificate is issued, the deceased's property vests in the personal representative, who holds it as trustee for the people entitled, subject to the payment of debts. That describes the duty, but how it applies to a running company depends on the company's structure, any shareholder or partnership agreement, and the other owners. It also depends on what your authority allows before the certificate arrives.

Because the answer depends on the facts, speak with a lawyer before making significant business decisions such as selling shares, signing new contracts or paying out money. An accountant can help with payroll, tax filings and the valuation.

What to do next

• Locate the shareholder agreement, partnership agreement, articles and recent financial statements.
• Identify who else owns or controls the business and tell them of the death.
• Arrange a valuation as of the date of death and keep the supporting documents.
• Separate Ontario real estate, mortgages and unsecured debts when you total the estate.
• Diarize the six-month and 180-day deadlines that apply to your estimate and return.
• Ask a lawyer who is authorized to act and what the business needs to keep operating.

Frequently asked questions