The sale of a 1957 Ferrari 335 Sport Scaglietti for 32 million euros (about $35.8 million US, or $50.2 million Canadian) earlier this month set the record for the most expensive car ever sold at an auction, the New York Times reported. It also made waves for what the Times reports as a new method of reducing estate taxes – using selective data to undervalue precious collectibles and vintage cars owned by an estate.
The Ferrari was sold by the Bardinons, a wealthy French family feuding with the French government over the value of the estate of patriarch Pierre Bardinon’s estate, who died in 2012. Bardinon’s wife died shortly afterward in 2013.
Bardinon, an heir to the Chapal family, who are known for their leather pilot bomber jackets, amassed a collection of over 70 rare Ferraris during his lifetime, and turned the family chateau at Mas do Clos into a Ferrari museum and racetrack. After Pierre and his wife died, some of the family valued the remaining Ferraris at around 70 million euros, despite the rarity of the cars. Experts say the collection might be worth over $200 million US. The French government has levied an inheritance tax of millions of dollars on their three children, and a court fight looms.
As the article notes, the value of trophy assets can be subjective, so some families use special appraisers or selective data to value family heirlooms and lower their tax bill. In the United States, the I.R.S. has a special panel of experts called the Art Advisory Panel that determines the value for lucrative artwork.
There is no estate tax in Ontario, so a rare Ferrari disposed of in a will that is not probated would not be subject to an estate administration tax. But if a will is probated, the estate would be required to pay the estate administration tax on its assets, including rare collectibles.
Ontario’s recently introduced Estate Information Return has increased the requirements on estate trustees to disclose the assets of the estate, and their value. The Estate Information Return must be filed within 90 days of the receipt of a certificate of appointment of estate trustee. Section G of the form requires the estate trustee to list all vehicles and vessels of the estate, and to write their “Fair Market Value (at date of death).” A similar entry is required for other property, including art and jewelry.
While the Ministry’s guide is not explicit on this point, it appears that assets in a secondary will that is not probated would not need to be included on the Estate Information Return. Under the Estate Administration Tax Act, 1998, Information Required Under Section 4.1 of the Act, Ontario Regulation 310/14, the return includes a “complete list of the assets of the deceased person used to determine the value of the estate.” The estate, in that section, refers to an estate in which an estate representative received an estate certificate. An estate representative would not apply for an estate certificate for a secondary estate.
The amount listed for an item’s fair market value can be scrutinized by the Ministry of Finance. The Ministry says it may conduct audits to ensure compliance with the Estates Act and its regulations. The audit is similar to a tax audit. The Ministry may issue a notice of assessment if it disagrees with the amounts listed.