Tag: Estate Administration Tax Act
Were you recently appointed as Estate Trustee and needed to obtain a Certificate of Appointment of Estate Trustee (otherwise known as “probate”)? In that case, you need to know that an Estate Information Return must be filed with the Ministry of Finance within 90 days of the date of the appointment, setting out the assets in the Estate and their corresponding date of death values.
Typically when an Application for Certificate of Appointment is filed with the Court, a trustee may not have access to every asset of the Estate such that that the value of the Estate may not necessarily be accurate.
As a result, when an Estate Information Return is filed following the Certificate of Appointment being granted, all of the assets of the Estate must be listed. Depending on the values of the assets as confirmed by the trustee following the Certificate of Appointment being granted, a refund may be issued in the event that Estate Administration Tax was overpaid or additional tax may be payable in the event that the value of the assets as listed on the Application is lower than what was listed on the Estate Information Return.
The Estate Information Return may be audited by the Ministry of Finance for up to four years after it is filed. As such, it is important to retain all relevant records in the event of such an eventuality. Another important consideration is that the Ministry of Finance will not typically provide confirmation of receipt of an Estate Information Return so it is prudent to send it via means that would provide you with confirmation of delivery such as fax.
Finally, if a trustee finds out any additional information regarding the value of the assets of the Estate that has any bearing on the Estate Administration Tax payable, an amended Estate Information Return must be filed within 30 days of the new information being uncovered.
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According to the Legislative Assembly of Ontario, Bill 120: Estate Administration Tax Fairness Act, 2015, was brought before the Legislature seeking amendments to the Estate Administration Tax Act, 1998 (“EATA“).
The EATA was only recently amended, and entered into force on January 1, 2015. Substantive changes were made at that time. These changes have been the subject of Hull & Hull LLP blogs and podcasts, including such topics as: general changes to the EATA; frequently asked questions; the effect of the EATA on insurance policy proceeds; and, how to file the estate information return.
Bill 120 sought amendments to the EATA with respect to the following areas:
Value of the Estate – In determining the value of the estate, the current procedure is to deduct any encumbrances on real property to the total estate value. The Bill sought to amend the definition of ‘value of the estate’ by deducting not only the value of any encumbrance on any such property, but also any amounts bequeathed or devised for a charitable purpose.
Estate Administration Tax – Currently, the amount of tax payable upon the issuance of an estate certificate is $5.00 for each $1,000 (or part thereof) for the first $50,000 of the value of the estate, and $15.00 for each $1,000 (or part thereof) of the value of the estate that exceeds $50,000. Decreases to the amount of tax payable were proposed such that any estate valued at less than $50,000 would pay nil tax, with increased taxes owing for estates valued more than $50,000, with the maximum of tax payable to be capped at $3,250.
Disclosure to the Minister of Finance – Bill 120 also sought to limit the information given to the Minister of Finance and along with certain continuing obligations imposed therein.
The Second Reading of Bill 120 was held on September 24, 2015, at which time the motion was declared lost, and the Second Reading negatived.
On February 27, 2015, I chaired a workshop titled, The Estate Administration Tax Act, 1998: New Reporting Requirements, which was provided as part of the LSUC’s Continuing Professional Development.
As part of this workshop, our speakers, among other things, canvassed the various issues and concerns raised in relation to the introduction of the new Regulation, which came into effect January 1, 2015.
One area of concern we discussed during the workshop was the treatment of mortgages on real property. Specifically, the situation in which a deceased dies with real property in Ontario that is subject to a mortgage and that mortgage is secured by way of life insurance with the proceeds of the life insurance policy made payable to the mortgagee.
At that time of the workshop there was some uncertainty as to what information would need to be included in the value of the estate for the purposes of estate administration tax and the Estate Information Return in such circumstances.
Following the workshop, discussions were held at the Ministry of Finance and the Ministry has since clarified its position on this issue.
The Ministry’s position is that under these circumstances, since the insurance policy is payable to a designated beneficiary, the proceeds do not flow through the estate. They do not form part of the value of the estate for the purposes of estate administration tax. They do not need to be reported on the Estate Information Return. Since the real property is in Ontario, it should be included as an asset of the estate. The mortgage, since it is registered against real property in Ontario, can be deducted from the value of the estate for the purposes of estate administration tax.
So, for example, let’s say Jim dies the registered owner of real property in Ontario valued at $500,000. Prior to his death, Jim registered a mortgage against this property in favour of CIBC. Jim secures the mortgage by way of life insurance with the premiums paid by Jim and the proceeds of the life insurance policy made payable to CIBC.
Upon Jim’s death, the amount owing in respect of the mortgage registered in favour of CIBC, as at Jim’s date of death, is deductible from the fair market value of the property and the life insurance proceeds, as payable to CIBC, would not be included as an estate asset.
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Today on Hull on Estates, David Smith and Josh Eisen discuss the new regulation under the Estate Administration Tax Act, 1998 and answer some frequently asked questions about the regulation.
Should you have any questions, please email us at firstname.lastname@example.org, or leave a comment on our blog page.
Click here for more information on Josh Eisen.