In May of 2011 Bill 173, Better Tomorrow for Ontario Act (Budget Measures), 2011, received royal assent. Schedule 14 amended the Estates Administration Tax Act (“EATA”) to give power to the Minister of Revenue to conduct assessments and reassessments of the taxes paid, to create a duty on estate trustees to provide information to the Minister of Revenue upon request and to lay penalties for the failure to “comply”. These powers are similar to those enjoyed by Canada Revenue Agency when dealing with income tax for an estate.
With this, practitioners need to remind their clients to be diligent in obtaining proper and accurate valuations of assets on death and to “paper” the valuations used. As with all things tax, it is unclear for how long the backup documentation needs to be kept but 7 years is likely the minimum time that should be suggested.
There are other issues regarding these new powers: the Estates Administration Tax Act states clearly that the tax to be paid is payable by the estate representative in “his, her or its representative capacity only”. So, if an assessment occurs resulting in a finding that more tax is payable, and the estate has been distributed who then is obliged to pay the additional tax? Further, there is no mechanism to get a final “release” from the Minister such as a clearance certificate supporting the principle that the liability to pay this tax is not a personal liability of the estate representative. Finally, there is no word as to when or how the Minister will use these new powers – perhaps never – although it is possible that in the fall we will see some further regulations.
Why then bother to makes these amendments? Perhaps it was for the deterrence effect – if the applicant is aware that there is a possibility of assessment then he or she will presumably be more careful and accurate in the valuation of assets leading to a more accurate collection of the tax.
Lesson Learned: Remind clients of this change and continue to ensure the accuracy of the valuations and in completing the probate application. Big brother is watching.
Until next time