Probate Tax vs Income Tax on Death in Ontario: What Differs?

If you are the estate trustee, you may hear several tax terms at once: probate tax, the final tax return, capital gains and a clearance certificate.

This article explains the Ontario probate tax in detail, since that is the tax connected to the court application. It also explains where income tax fits, so you know what to ask an accountant.

Two different taxes, two different jobs

In Ontario, what people call probate tax is the Estate Administration Tax. It is a provincial tax tied to the court application for a certificate of appointment of estate trustee. It is charged on the value of the estate, not on what any one beneficiary receives.

The estate tax described above is separate from any income tax questions that may arise on a death, and how those apply depends on your situation, so it is worth confirming with a lawyer. Which tax returns, filings or certificates your estate needs depends on the deceased's finances and on your circumstances, so it is worth confirming the details before you act. An accountant can confirm what applies to your estate.

How the Estate Administration Tax is calculated

For applications made on or after January 1, 2020, no 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 estate value is rounded up to the nearest thousand. For applications made before January 1, 2020, the exemption was $1,000 or less and different rates applied.

What counts toward the value matters a great deal:

• Real estate outside Ontario is not included, but other property worldwide is, such as bank accounts (including foreign banks), investments, vehicles and business interests.
• Ontario real estate is valued less encumbrances such as a mortgage, collateral mortgage or lien.
• Unsecured debts such as credit card balances, loans, interest and lines of credit cannot be deducted to reduce the value.
• Assets, including private company shares and business interests, are valued at fair market value at the date of death.

You should be able to support each value with documents such as statements or an appraiser's opinion.

When the tax is paid, and who pays it

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 estate representative personally. Payments must be made in person or sent by mail or courier to the court office.

If the deposit is based on an estimated value, the applicant must undertake to file a sworn statement of the actual value and pay any additional tax within six months.

You must also file an Estate Information Return with the Ministry of Finance within 180 calendar days after the certificate is issued, even if no tax is payable. If you learn the information is incomplete or inaccurate, an amended return must be filed within 60 days of becoming aware.

Getting it wrong, and getting money back

Failing to file the required information, or making false or misleading statements, is an offence. The penalty is a fine of at least $1,000 (up to twice the tax if the tax exceeds $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.

If tax was overpaid after the certificate was issued, the request goes to the Ministry of Finance, not the courthouse, and is made by filing or amending the Estate Information Return. The information must have been provided within four years after the certificate was issued. The written request must be received within 12 years after the certificate was issued, or within 2 years after a notice of assessment or reassessment.

If the certificate has not yet been issued, you ask the Superior Court of Justice office where the application was filed for a refund of the deposit. The deposit is refunded if no certificate issues, and any excess is refunded if the estimate was too high.

What to do next

• List every asset and its fair market value at the date of death, and keep the supporting documents.
• Separate Ontario real estate (less its mortgage) from real estate elsewhere, and do not deduct credit card or loan balances when valuing the estate for this tax.
• Pay the deposit when you file, and diarize the date for the Estate Information Return.
• Ask an accountant separately about the deceased's income tax position, including any final return, capital gains and clearance certificate.
• Speak with a lawyer if the estate's value is uncertain or if values may have to be corrected after filing.

Frequently asked questions