EAT – Estate Administration Tax

“Probate fees” or ‘probate tax’ must be paid to the government of Ontario when an estate is probated. Learn more about probate basics here.

The proper name for this tax is Estate Administration Tax which is often abbreviated to ‘EAT’ (said E-A-T)

EAT is paid from the estate and is not borne by the trustee/executor.

Probate Fees Calculator

Use this calculator to estimate the ‘estate administration tax’ payable for an estate.

 

 

How Estate Administration Tax is calculated

Probate fees are calculated on the value of the estate probated:

• $nil  on estate assets up to $50,000, and
• $15 per $1,000 of estate assets over $50,000.

Note that EAT is an ‘asset’ tax, not an income tax as is the norm in Canada.

Note: the ‘no EAT on the first $50,000’ rule is different from the ‘simpler process for small estates under $150,000’ for probate.

What must be included in estate assets

When paying EAT, all assets owned by the deceased which form part of the deceased’s estate that is subject to probate in Ontario must be included (see below for exclusions).  This includes:

• All real estate in Ontario, minus the value of any encumbrances on that real estate (encumbrance = mortgage or lien).  Thus, you deduct the outstanding value of any mortgage, HELOC, or lien or charge registered against land in Ontario.  You do not include real estate that was owned in ‘joint tenancy with a right of survivorship’ (see below).  You do include the proportionate value of real estate owned ‘as tenants-in-common’
• All personal property of the deceased including
  • All investments (except items that had named beneficiaries, such as pensions, RRSPs, TFSAs and RRIFs with beneficiaries other than the estate)
  • All bank accounts (except those held in joint ownership)
  • All vehicles including recreational vehicles.
  • Collections (coins, cards, …)
  • Furniture
• There is no deduction for any debts that are not secured by ‘encumbrances’ against Ontario real estate.  There is no deduction for credit card debt, car loans, student debt, margin debt, investment loans, tax arrears or personal debt, unless the debt is secured by a charge against Ontario real estate.  There is no deduction for mortgages or other charges registered against property outside Ontario.  If the debt is secured by a lien or charge against land (for instance, when tax debt is secured by a tax lien) then, you do deduct the amount secured.

EAT is assessed on the fair market value of the assets of the deceased subject to probate on the date of death.  No deduction is made for selling costs (eg. real estate commissions).  The estate trustee should document and retain copies of the basis for their assessment of the value of the estate, including estimates where received by experts or appraisers.  This is particularly important if the asset in question will not be sold to a purchaser at arms length to the estate (for instance, real estate or art that passes to a beneficiary).

Valuation, appraisals, estimates

When determining the value of assets for EAT purposes –

• You can use reasonable estimates when applying for probate; and
• You must use actual values when filing the Estate Information Return (the “E-I-R”).

Detailed appraisals of all assets before probate are not required for probate and EAT purposes (although they may be useful for other purposes such as income taxes or if there are disputes among beneficiaries).  For probate purposes ‘reasonable estimates’ are sufficient to calculate and pay EAT.  If the value of assets sold by the estate differ from the values used initially, then it is possible to pay the additional amount due or request a refund of any surplus paid when the EIR is filed.  More information about filing Estate Information Returns and our assistance to trustees with this process is found here.

Appraisals of real estate ‘effective the date of death’ are often useful for income tax purposes although it is usually possible to secure one after probate but before the property is sold.

Appraisals of personal property (anything that can be moved – furniture, clothes,  dishes, tools and equipment, collections of dolls, stamps, and coins …) are rarely worthwhile.  Most personal property is worth very little in monetary terms (they may be valuable for sentimental reasons), with the rare exception of some valuable equipment and collectibles.

For the average family, ‘nil’ is the correct value of the household contents and an appraisal before probate is not required.

 

If there are multiple wills, and one will is subject to probate and another is not, include only the assets covered by the will subject to probate.

What is not included in probated estate assets

The following items are not ‘assets of the estate’ for EAT purposes, do not attract EAT and are not disclosed on the EAT return:

• Real estate outside Ontario
• Real estate owned ‘in joint tenancy with a right of survivorship’ (technically, upon the death of one owner, there is no transfer of title as the deceased simply ceases to be an owner, and the surviving co-owner remains the sole owner of the property)
• Life insurance that passes to a named beneficiary
• RRSPs/TFSAs/RRIFs that pass to a named beneficiary
• Pensions
• Bank accounts held jointly with another person

Learn more about jointly owned assets and beneficiary designations (and the risks!) here.

Paying the EAT

Generally, EAT must be paid in full by certified cheque or money order when the probate application is filed. Uncertified personal cheques are not acceptable.

Sometimes the EAT is advanced as a loan to the estate by the estate trustee or a beneficiary.  This loan is repaid by the estate trustee, after probate, from assets of the estate.

If the EAT is a large amount, and none of the estate trustees or beneficiaries has sufficient funds to lend to the estate, it may be possible to get funds to pay EAT from the cash or investments of the deceased.  This is done by requesting that the financial institution provide a bank draft payable to the Ministry of Finance for the probate.  A formal request from the lawyer assisting the estate trustee with the probate application is usually best.

If the estate does not have sufficient funds to pay EAT now, we can help.  A deferral of EAT may be granted upon special application to the Court.  These are not automatic and require care.  Generally, these require proof that the estate does not have liquid assets, but does have real estate in Ontario.  Deferrals are often for a limited period of time (for example 90 days), and require a personal undertaking from the estate trustee to pay the EAT after they have a reasonable period to sell the real estate.

The Estates Information Return (the “E-I-R”)

The estate trustee must file the Estate Information Return within 180 days of receipt of the Certificate of Appointment of Estate Trustee.  The return requires a detailed listing of all assets of value of the estate to which EAT is applicable.  We often assist estate trustees to prepare and file this return.  With the proper software it can be submitted electronically, which generates an automatic receipt for filing.

It is a serious offence to file a false EIR.

We have grave concerns about assets that were held ‘in joint tenancy’ with one adult child of the deceased, but the proceeds are intended to be distributed to ‘all beneficiaries of the will’.  This seems a transparent attempt to avoid Estate Administration Tax for assets that, in fact, are part of the estate.

Learn more about the EIR and other steps the trustee must complete here.

Estimates, updates and refunds

It is possible to file a probate application based on an ‘estimated’ value of the estate.  This should be employed if values are truly unknowable to the estate trustee prior to probate.

An estate trustee has a duty to file and update the EAT, and pay any additional EAT due in a timely fashion when the change in value becomes reasonably known to the estate trustee.  Recall, however, that this is applicable where the value of the estate on death was under-valued; if estate assets (such as real estate) appreciate after death but before sale, this post-death gain will result in taxable income for the estate but does not result in a need to re-file or pay more EAT.

It is possible to obtain a refund of an over-payment of EAT.  In the past is was difficult, slow, and not always successful, but our recent experience has been more positive.