When someone passes away, their assets are typically distributed to their beneficiaries or their heirs. However, in some cases, the government may take a portion of the deceased person’s assets in the form of estate taxes. In Ontario, several types of taxes can apply to an estate. In this blog post, we’ll explore the various types of Ontario estate taxes and what you need to know about them.

1. Income Tax

The deceased person’s estate is subject to income tax on any income earned since the date of death. This includes any interest, dividends, or capital gains earned on assets held in the estate. The estate must file a tax return for the year of death and any subsequent years until the estate is fully distributed.

2. Estate Administration Tax (Probate Fee)

The Estate Administration Tax, also known as the probate fee, is a tax charged on the value of an estate when a will is probated. Probate is proving that a will is valid and that the named executor has the authority to distribute the deceased person’s assets. In Ontario, the probate fee is calculated based on the estate’s total value. Probate fees are not calculated on the first $50,000.00 of an estate value. However, for the remaining value of the estate, the calculation is $15.00 per $1,000.00. For example, if the value of an estate is $500,000, the probate fee would be $6,750.00.

It’s important to note that not all assets are subject to probate and, therefore, subject to the estate administration tax. Assets held jointly with the right of survivorship (such as jointly-owned bank accounts or property) pass to the surviving owner outside of the estate and are not subject to probate. Similarly, assets with named beneficiaries (such as life insurance policies or retirement accounts) also pass outside of the estate and are not subject to probate.

3. Capital Gains Tax

Capital gains tax is a tax on the increase in value of an asset when it is sold or disposed of. When someone passes away, their assets are typically deemed to have been sold at fair market value at the time of their death. This means that if an asset has appreciated since it was acquired, the estate may be subject to capital gains tax on the increase in value. There are, however, some exceptions and exclusions for certain types of assets, such as the principal residence exemption.

4. Other Taxes

In addition to the above taxes, other taxes may apply to an estate, such as provincial land transfer tax on the transfer of real estate or harmonized sales tax on the sale of certain assets.

Conclusion

Estate taxes can be a complicated and often overwhelming topic, especially for those dealing with losing a loved one. We recommend working with a knowledgeable estate lawyer and tax professional to ensure that the estate is administered correctly and that all taxes are paid promptly. By understanding the various types of Ontario estate taxes, you can better plan for the distribution of your assets and ensure that your loved ones receive the maximum benefit from your estate.