Let's face it. Executors (also known as "estate trustees" in Ontario) have a difficult job at a challenging and emotional time. It also comes with significant responsibilities and risks, if not handled correctly.
But, beware: under-reporting the value of an estate for probate tax purposes may land you in hot water. The Ontario government possesses the authority and power to audit and levy hefty penalties in cases of under-reported estate values.
This authority, although not frequently used, serves as a strong deterrent. The resulting penalties can be harsh and pose serious complications. Audits can delay the administration of an estate and may incur substantial costs even if no additional probate tax is eventually levied.
The Estate Information Return (EIR)
Ontario introduced the Estate Information Return (EIR) in 2015 out of concern that executors might undervalue estates to minimize probate tax. The province imposes a 1.5% estate administration tax (probate tax) on estate values exceeding $50,000.
Prior to EIR's introduction, executors could provide a estimated estate value without supporting evidence. The EIR, however, requires executors to document the fair market value of each asset as of the death date of the deceased, along with additional details. Bank or investment accounts require account numbers, branch details, and financial advisor information and real estate assets need the property’s assessment roll number (ARN), property identifier number (PIN) and municipal address.
The EIR holds the executor accountable in terms of justifying the values submitted on the application for probate and promotes the fair and honest distribution of assets.
A Strict Compliance Program
While other provinces also levy a probate tax, none have a compliance program similar to Ontario's. Executors must submit the EIR to the Ministry of Finance within 180 days of receiving the probate certificate and the province also has the right to assess or reassess the estate's value for up to four years after the probate certificate is issued.
Penalties for underestimating the value of an estate include: a fine of at least $1,000 and up to twice the probate tax payable, imprisonment of up to two years, or both.
Challenges and Solutions
The introduction of the EIR and potential audit threats have made executors more cautious about fulfilling their asset reporting duties and professional appraisals are advised for all real estate assets and the contents in the deceased's home.
Without a professional appraisal, executors must be prepared to justify their claims should an audit occur. Consequently, executors are advised to obtain a professional appraisal of the estate assets. A formal appraisal from a qualified third-party professional offers protection in the event they are selected for an audit.
Final Words of Advice
Apex Appraisal belongs to the Appraisal Institute of Canada (AIC) which is Canada's leading real property valuation association and is recognized by all government entities, including the Ontario Ministry of Finance and Canada Revenue Agency (CRA). We are fully designated and insured members of the AIC with years of experience.
Apex Appraisal can ensure that executors have an accurate valuation when reporting real estate values on the Estate Information Return (EIR) and provides a formal appraisal report for supporting documentation in the event of an audit.
For more information, please reach out to us by phone or email or visit our page on Estate Settlement and Probate Appraisals.
Should you require a contents appraisal, we suggest visiting the Canadian Personal Property Appraisers Group (CPPAG) website.