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New Ontario Estate Administration Tax Act Regime Effective January 1, 2015

Organizing one's estate planning to minimize estate administration taxes or "probate fees" (the tax collected by the Ontario government on the date of death value of a deceased's estate when an estate representative applies to the court for a certificate of appointment) has been a popular goal for Ontarians given our relatively high rate of tax as compared to other provinces and territories.

A little over two years ago, our blog post "The New Ontario Estate Administration Tax Regime--What You Need to Know" (December 5, 2012), advised of new legislative measures enacted under the Estate Administration Tax Act (the "Act") that increased reporting requirements and enforcement procedures. Those measures, which have been looming over our heads since that time, came into force on January 1, 2015 with little warning. What they mean for anyone dealing with probate in Ontario is a more onerous and expensive estate administration process and rethinking current estate planning.

The new reporting regime is triggered by applying for and receiving a certificate of appointment of estate trustee on or after January 1, 2015. In addition to the paperwork an estate representative must complete and file with the court in order to receive a certificate of appointment, estate representatives now must also complete and file an estate information return with the Ministry of Finance within 90 calendar days of the court issuing the certificate of appointment of estate trustee.

Most significantly, the return (which is a prescribed form available from the Ministry) requires the estate representative to detail each estate asset and its fair market date of death value. The estate representative must also be able to corroborate the reported asset values. Certain assets for which fair market values are trickier to figure out (such as real property (MPAC values are not acceptable), household goods and furniture, business interests and shares of private corporations, etc.) will likely require professional valuations and appraisals in order to ensure that the estate representative does not file a false or misleading return. Penalties include fines and even imprisonment for failing to file a return or where the information filed was false or misleading.

If, after filing a return, an estate representative later discovers the return was incorrect or incomplete (including because additional estate assets are determined), the estate representative must file an amended return within 30 days of the discovery.

The Ministry, in conducting its review of the returns, has broad audit powers, including the assessment of further tax if an estate's date of death value is determined to be greater than the amount on which tax was originally paid. What will likely prove to be frustrating for estate representatives and beneficiaries alike is the four-year period from the date of filing the return in which the Ministry can conduct its review and audit.

It will take some time working under this new regime to see how it will function in practice. We predict, however, that these more onerous and costly requirements will spark renewed interest in tax minimization strategies, such as multiple wills and using a trust as a will substitute, among others.

In light of these recent changes, we have also updated our Client Advisory "Planning to Minimize Estate Taxes Under the Estate Administration Tax Act, 1998 (Ontario)", which sets out a number of strategies that may be considered.

- Margaret O'Sullivan

Watch for our next blog post discussing proposals for a new protective regime for our aging society.

The comments offered in this article are meant to be general in nature, are limited to the law of Ontario, Canada, and are not intended to provide legal or tax advice on any individual situation. Before taking any action involving your individual situation, you should seek legal advice to ensure it is appropriate to your personal circumstances.

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