Paying Too Little Estate Administration Tax in Ontario

Estates are often valued in a hurry, and mistakes happen. You may have forgotten an account, counted a house at the wrong value, or found an asset months after probate was granted. If you are the executor, the natural questions are what happens next and whether you are on the hook personally.

This article explains how the tax shortfall is generally fixed, which deadlines apply, and where penalties come in. Questions about interest or personal exposure depend on the facts and are worth confirming with a lawyer or accountant.

Why an estate ends up undervalued

The tax is based on the estate's value, rounded up to the nearest thousand dollars. Above $50,000, the tax is $15 for every $1,000 (or part thereof) of value over $50,000 for certificates applied for on or after January 1, 2020. So an error in value changes the tax.

• Assets were valued at something other than fair market value at the time of death.
• A house was valued at its sale price instead of its appraised value at the date of death.
• Debts such as credit cards, loans or funeral costs were wrongly subtracted. Only encumbrances on real property can be deducted.
• An RRSP, RRIF or TFSA payable to the estate, or insurance payable to the estate, was left out.
• An estimated value was used on the application, or assets were found after the certificate was issued.

How to fix it

If information in a filed return turns out to be incorrect or incomplete, an amended return must be filed within 60 days of becoming aware of it. This duty applies within four years of the certificate being issued.

Some situations have their own timing. If an estimated value was used on the application, an amended Estate Information Return is due within 60 calendar days after the actual value is given to the court under the undertaking. If assets are discovered after the certificate is issued, an amended return listing them is due within 60 days after the statement of that property is delivered to the court.

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.

Personal liability and penalties

The Estate Administration Tax is paid by the estate, not personally by the estate representative. That does not mean a representative has no exposure. A representative who fails to file the return, or who makes false or misleading statements, may be fined at least $1,000 and up to twice the tax payable by the estate, imprisoned for up to two years, or both.

Whether a trustee could be personally responsible in other ways, for example after distributing money to beneficiaries, and how interest applies to unpaid tax, depends on the facts. Ask a lawyer or accountant before you distribute anything while a shortfall is unresolved.

How long the Ministry can come back

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 do so at any time. 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. Correcting an error voluntarily and promptly is generally better than waiting to be found.

What to do next

• List every asset again, with its fair market value at the date of death and supporting documents.
• Check each item against what counts and what does not, including joint assets and beneficiary designations.
• Note the date you became aware of the error, since the 60-day amendment period runs from then.
• Prepare an affidavit with the revised value if more tax is owing.
• Get advice from a lawyer or accountant before filing, and hold off on distributions until the position is clear.

Frequently asked questions