The payment of probate fees, as they were called prior to 1998, has a long history across the provinces in Canada. In general, however, strategies to reduce or avoid the payment of probate fees were not prevalent until the provinces began to increase the quantum of fees. In Ontario this began in 1992 when pursuant to section 5 of O. Reg. 293/92 probate fees were increased to the rates which continue to exist today: 0.5% of the value of the estate up to $50,000 and 1.5% of the value above $50,000.
In Ontario this history included a trip by the Estate of Donald Valentine Eurig to the Supreme Court of Canada where the issue of the constitutionality of the probate fee was considered. The Court determined that the fee was actually a tax and, as a result of the manner in which it was enacted, was ultra vires the Province’s authority. Thereafter the Province enacted the Estate Administration Tax Act, 1998 (the “EATA”) which retroactively confirmed that the fee was a tax. The manner in which probate taxes were calculated, reported and assessed has remained the same in Ontario since EATA was introduced until January 1, 2015, when amendments and regulations were enacted to the EATA which implemented reporting requirements and audit capabilities.
While clients are in general surprised to learn of the rates of probate tax, one of the issues that often causes greater consternation is the fact that when calculating the value of the estate the only form of debt that is deductible is the “actual value of any encumbrance on real property.” As a result, to the extent the client’s estate has personal debt outstanding on the date of their death, for example lines of credit, if that debt is not registered in the form of an encumbrance on real property, it is not deductible when determining the value of the estate.
Recently a private member’s bill called the “Estate Administration Tax Fairness Act, 2015” was put forward. It appears that this difference in the manner in which debt is treated for purposes of calculating the value of the estate has caught the attention of Conservative MPP Monte McNaughton. The explanatory note provides a glimpse into the rationale for the bill:
“Currently, the Estate Administration Tax Act, 1998 provides that the value of the estate of a deceased person does not include the value of any encumbrance on real property owned by the deceased person. The Bill amends the Act so that the value of any encumbrance on any property is excluded from the value of the estate. In addition, the value of a bequest or devise made for a charitable purpose is not included in the value of the estate.
The Act also changes the amount of estate administration tax payable starting on the day the Bill receives Royal Assent. For an estate worth $50,000 or less, the amount of tax payable is nil. The amount of tax for an estate worth more than $50,000 is $5 for every $1,000 by which the value of the estate is greater than $50,000 but less than $100,000, and $20 for every $1,000 by which the value of the estate is greater than $100,000. The maximum amount of tax payable under the new provisions is $3,250, with the result that no estate bears a greater estate administration tax liability under the new rate structure than it does under the current rate structure.
The Bill also repeals amendments made to the Act by the Better Tomorrow for Ontario Act (Budge Measures), 2011. Major features of that Act are provisions requiring information about estates to be given to the Minister of Finance and provisions relating to the assessment of estates in respect of their estate administration tax payable under the Act.”
The approach of the Bill is, in effect, to level the playing field such that all estates are ultimately anticipated to pay the same tax. It remains to be seen whether the Bill will gain traction. So stay tuned!