The Institute of Law Clerks of Ontario recently hosted an education session on Ontario’s Estate Administration Tax (“EAT”) and the Estate Information Return (“EIR”), presented by a representative of the Ontario Ministry of Finance (“MOF”). I was particularly interested in this session as I wrote about the new online filing process for EIRs in my last blog post https://www.allaboutestates.ca/estate-information-return-the-new-online-process/. Today’s blog will share some of the key takeaways from the education session.

Audit Process: What You Need To Know

The MOF representative provided the following insights into the MOF’s audit approach:

• Audits are conducted as a desk audit, with no on-site visits.
• Typically if there is going to be an audit, it will be initiated by the MOF within three or four months after the EIR has been filed, but the MOF has authority to audit an EIR up to four years after the filing.
• The MOF looks at two accounting principles:
  • Completeness – That all assets that belong to the estate are included on the EIR and that the appropriate EAT was paid.
  • Accuracy – That due diligence has been completed and that there are supporting documents to satisfy the fair market value of the assets.
• Audit selection may be random or risk based on certain criteria that the MOF runs through their internal database, e.g. if the value attached to a home in a particular geographical location appears to be low.
• If an EIR is selected for audit, the MOF will make initial contact by way of letter requesting supporting documents. The letter will be sent to the estate trustee or to their authorized representative.

Comfort Letters: Proceed with Caution

The MOF issues comfort letters if requested to show that the estate’s account with the MOF is in good standing. Requesting a comfort letter can trigger an audit, which may outweigh its benefits, especially if the estate trustee is confident that they have done their due diligence and have all the necessary supporting documents. The estate trustee should obtain professional advice on this matter.

Asset Considerations: Common Challenges

Below are some generic situations that the MOF typically comes across or get enquiries about. As a reminder, on an application for a Certificate of Appointment of Estate Trustee Limited to the Assets Referred to in the Will, only those assets considered for the limited grant should be included on the EIR.

Bank Accounts: Joint bank accounts need to be reviewed to determine if they are part of the estate. The court ruled on this issue in Pecore v Pecore and considered intent versus structure. If the bank account’s joint status is for administrative convenience, e.g. “so I can pay Mom’s bills”, instead of a gift to the joint holder, the joint bank account is likely an estate asset and, if so, should be included on the EIR. The estate trustee should obtain professional advice on this matter.

Real Estate: Beneficial interest in a property requires inclusion in the estate, even if the individual is not on the deed. With respect to a First Dealings exemption, if a Certificate of Appointment is issued, all estate assets must nevertheless be included, regardless of whether the certificate was needed to deal with that particular asset.

Encumbrances: Only encumbrances registered against real estate property can be deducted from the estate’s value. The encumbrance has to be properly registered to qualify as an encumbrance and a deduction against that real property.

Investments: For assets like GICs that mature after the date of death, the fair market value at the date of death should be determined by consulting with the financial institution, as for example, there may be penalty clauses for early cashing out.

Vehicles and Vessels: To determine the value of vehicles and vessels, due diligence is necessary. Tools like the Black Book or finding comparables can assist, and documentation should be kept for audit purposes.

Other Assets: This category can include various items such as intellectual rights, patents, and valuable art. Again, proper documentation to support due diligence for values used is crucial.

The New EIR Portal and Things to Come

The MOF representative gave some background on the transition to the new portal and future enhancements that are in the works. The previous Adobe-based application was replaced with a web-based solution, making it more accessible and it does not require downloading to a local computer. The portal allows users to save drafts, continue editing, and print versions of the EIR. The MOF representative did acknowledge feedback that the appearance and layout differs from the previous Adobe product.

The MOF is exploring the possibility of integrating online payment options within the portal, although this is still in development. Also, the MOF is in discussions with IT solution providers used by legal professionals to enable direct submission from existing software systems, potentially eliminating the need for re-entering data manually.

Have you tried the new EIR online portal? The MOF welcomes feedback from its users by phone at 1-866-ONT-TAXS (1-866-668-8297) or by email at EstateAdminTaxProgram@ontario.ca.

Thanks for reading.