Underpaid Estate Administration Tax in Ontario: Audits and Fixes

You applied for probate, the certificate was issued, and then you noticed a problem. Maybe a bank account was missed, a house was valued too low, or a mistake was made about what counts. Now you are worried that the Estate Administration Tax was underpaid and that the Ministry of Finance may come looking.

This article explains how an undervalued estate is generally corrected in Ontario, what an amended return involves, and how reassessment works. Every estate is different, so a lawyer or accountant can confirm how this applies to yours.

Why the estate value drives the tax

For estate certificates applied for on or after January 1, 2020, no tax is payable on an estate worth $50,000 or less. Above that, the tax is $15 for every $1,000 (or part of $1,000) of value over $50,000. The value is rounded up to the nearest thousand dollars. So an undervalued asset directly means too little tax was paid.

The tax is paid by the estate, not personally by the estate representative. Assets are valued at their fair market value at the time of death, and real property is valued at its appraised value at the date of death, even if it later sells for more or less.

Common ways an estate ends up undervalued

• Leaving out an account, investment or business interest. Bank accounts (including at foreign banks), investments, vehicles and vessels wherever located, business interests and other property wherever situated are included.
• Treating an RRSP, RRIF or TFSA as outside the estate when the estate is actually the named beneficiary.
• Forgetting insurance payable to the estate. It counts if the proceeds are left to the estate.
• Deducting debts that cannot be deducted. Only encumbrances on real property can be deducted. Funeral expenses, lawyer's fees, loans and interest, vehicle debt, credit card debt, real estate commissions, unregistered loans and lines of credit do not reduce the value.
• Using a rough value for a house or a complex asset without support. Estate representatives must be able to back up values with statements or an appraiser's opinion.

The reverse can also happen. Jointly owned assets that pass automatically to a surviving owner are left out, and so are insurance and registered plans that went to a named beneficiary. If you included those, the estate may have overpaid rather than underpaid.

How to pay the shortfall and correct the record

Additional tax found to be owing can be paid to the Superior Court of Justice or the Ministry of Finance. The payment must come with an affidavit setting out the revised value of the estate at the time of death.

The tax payment is only part of the fix. The Estate Information Return is also affected, and the deadline depends on how the error arose:

Audits, reassessment and objections

The Ministry of Finance may assess or reassess an estate's tax within four years after the day the tax was due. If a return was not filed on time or a misrepresentation was made, it may assess or reassess at any time, with no four-year limit.

If you disagree with an assessment, a Notice of Objection must be filed within 180 days from the day the Notice of Assessment was issued.

Failing to file the return, or making false or misleading statements, can lead to a fine of at least $1,000 and up to twice the tax payable by the estate, imprisonment for up to two years, or both. That is why correcting an honest mistake promptly, and keeping records of how you reached each value, matters.

What to do next

• Pull together the date-of-death values for every asset and compare them with what was reported on the application.
• Note which assets are inside the estate and which passed outside it, such as by survivorship or beneficiary designation.
• Calculate the difference and note the date you became aware of the error, since the amended return clock may run from then.
• Keep appraisals and statements; the supporting records must be kept for four years at the representative's principal place of business or residence.
• Speak with a lawyer or accountant before paying or filing, especially if the estate has been partly distributed or the return was late.

Frequently asked questions