Ontario has implemented a new estate administration tax (EAT) starting in 2015. The essential of this new tax is that the reporting requirements will be much more stringent and should be defined more quickly than in the past. The reports are also more complicated and the penalties heavier. Therefore, dealing with estates will be less fun than in the past.
The estate administration tax rate ranges from 1% to 1.5% and stands at 1.5% of the $ 5 million or more for the value of the estate. These charges will apply to most assets – real estate, bank accounts, vehicles and registered accounts that do not have a designated beneficiary. All assets that do not pass through the estate would not be subject to this tax – life insurance policies with a named beneficiary, real property outside Ontario and CPP death benefits in Ontario. are examples. This tax is usually payable at the time of application with a refund for adjustments made to the assessment given later in the process.
What is the process?
The process begins with a request for the "Certificate of Estate Trustee with (or without) Will" from the Ministry of Finance. The Ministry of Finance would issue a receipt for the "Certificate of Appointment of the Estate Trustee". Within 90 days of the launch of this application, the Executor must file a "Declaration of Succession" containing the estate administration fees, as well as the application for "Certificate of Approval". The valuation of assets included in the estate would be part of this document. If the value of the assets is an estimate because the actual value takes time to calculate, the executor or trustee would have six months to confirm the actual value of the assets in question. If the assets were revalued, a new, revised deposit would be submitted within 30 days.
Four-year rule for audits
The Ministry of Finance can verify, inspect and reassess once death duties have become due, which is the date the certificate was issued. If no information has been filed, the Ministry of Finance may also conduct an audit. An Executor may object within 6 months of re-evaluation by providing details to support. In the case of income tax, the clearance certificate may be issued to terminate any subsequent verification or action by the CRA. In the case of the estate administration tax, no certificate will be issued. This means that re-evaluation can take place indefinitely.
In the event of non-compliance, this may result in a compliance order or a no-go order. Fines can range from a minimum of $ 1,000 to a maximum of two times the value of the estate administration tax. A prison sentence of up to 2 years can also be added to the alternative to a fine.
How can we better plan the succession?
The selection of the executor and the agent to the executor is more important than in the past. An executor's agent is someone who does the preparatory work for the executor, but the executor assumes the ultimate responsibility for what is filed. This amounts to subcontracting some of the executor's work to another party. Communication with the executrix and the agent with the executor over responsibilities is more important, especially with regard to timing and accuracy. Record keeping will become more important as it will serve as the basis for these required assessments. The recordings must be accessible and up-to-date so that they can be used at any time. There is a possibility of insurance against errors (errors and omissions insurance) that can be used as protection against oversights.
Wills and powers of attorney must be kept up to date. An annual review of these documents can be helpful if there are frequent changes. Keep a record of the available net worth as a snapshot of the entire estate. Specific details can then be sought if necessary. If there are accounts in many financial institutions, it may be wise to consolidate them to avoid missing information. Contact information for accountants and tax preparers who may have access to the total value of the estate would also be helpful.