What Happens If the Estate Value Is Underreported in Ontario?

You filed the application, the certificate was issued, and then you found something. Perhaps a bank account was missed, a house was valued too low, or an estimate turned out to be short. If you are the estate trustee, you may worry about what this means for you personally.

This article walks through how to correct an understated estate value in Ontario, the deadlines, and what the risks are. The sooner a mistake is fixed, the easier it generally is to explain. Because every file differs, speak with a lawyer or accountant before you act.

Why the value on the application matters

Estate administration tax is based on the value of the estate, which is the value disclosed under s. 32 of the Estates Act less the actual value of encumbrances on real property. The applicant must give the registrar a sworn or affirmed statement of the total value of the property that belonged to the deceased at death.

Value means fair market value at the date of death, supported by documents such as statements or appraisals. Real estate uses appraised value at the date of death. Only encumbrances on real property reduce the figure. Debts such as credit cards, loans and funeral costs cannot be deducted. A common cause of understatement is deducting something that is not allowed.

Common ways the value ends up too low

• An estimate was used and the real value turned out higher. Where a deposit is based on an estimate, the applicant gives an undertaking to file a sworn statement of the actual value and pay any shortfall within six months.
• An asset was missed, such as a foreign bank account, a TFSA or RRSP payable to the estate, or a vehicle.
• Debts other than encumbrances on real property were deducted.
• Property turned up after the certificate was issued.
• A property was valued without an appraisal at date of death.

How to correct it

The route depends on why the figure was wrong. The deadlines in Ontario's guidance are summarized here.

Additional tax can be paid to the court with an affidavit of the revised value and an explanation, or paid to the Ministry of Finance, which issues a confirmation to give to the court. Returns can be filed online, which is fastest, or by mail, courier, in person or fax. The Ministry can be reached at 1-866-ONT-TAXS (668-8297), Monday to Friday, 8:30 am to 5:00 pm.

The revised-return deadline is 60 days, extended from 30 days from January 1, 2020. Older versions of the regulation text may still show the earlier numbers, so rely on the current rule.

Interest, assessment and audit risk

Whether interest or other charges apply on additional tax, and how much, depends on the facts. We do not state a rate here. Ask the Ministry or a lawyer to confirm what applies to your file.

The Minister of Revenue may assess or reassess the tax. Assessments are generally allowed within four years after the tax became payable, but there is no such limit where there was a failure to comply with s. 4.1, misrepresentation or fraud. The Minister may also appoint inspectors, and estate representatives must keep records that allow the tax to be accurately determined.

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

Penalties and your position as trustee

Failing to file, or giving false or misleading information, is an offence. The fine is at least $1,000, or up to twice the tax if more, with up to two years' imprisonment, or both. A reasonable-diligence defence exists.

Ontario states the tax is paid by the estate, not by the estate representative, and the representative is liable only in a representative capacity. How this applies to you personally depends on your situation, so it is worth confirming with a lawyer. A lawyer can also help you document what happened.

What to do next

• Write down what was wrong, how you found out and the date you discovered it, since the 60-day period runs from discovery.
• Collect statements and appraisals that support the correct date-of-death values.
• Work out which correction route applies: an amended return, a sworn statement to the registrar, or both.
• Calculate the extra tax using $15 per $1,000 (or part) over $50,000, with values rounded up to the next $1,000.
• Speak with a lawyer or accountant before filing, and keep all records, which must be kept for four years.

Frequently asked questions