Barry Corbin, a Toronto estate lawyer, thinks the Ontario government charges too much tax to have a court validate your will and the choice of executor when you die.
Instead of just griping, he wrote to every Ontario MPP in February 2013. Only one replied.
Monte McNaughton, a Conservative member (Lambton—Kent—Middlesex), wanted to do something about the tax (formerly called probate tax and now estate administration tax).
In a private member’s bill, he proposed capping the tax at $3,250 — about half the average now paid on estates.
While the bill was voted down Sept. 24 (with 41 MPPs against and nine in favour), McNaughton deserves credit for raising public awareness. So, here is a guide to what your survivors may pay after you die in Ontario.
How high is the tax anyway?
It is a two-tiered amount, which starts at $5 per $1,000 for the first $50,000 of an estate and goes up to $15 for each $1,000 after that.
Ontario’s charges are the highest in Canada. In other provinces and territories, the charge is a flat set amount or does not exceed $7 per $1,000, compared to Ontario’s $15.
Suppose you die with an estate worth $500,000. Ontario’s estate administration tax is $7,250.
This compares to $65 in Quebec, $140 in Yukon, $400 in Alberta, $400 in the Northwest Territories and Nunavut, $820 in Nova Scotia, $2,000 in Prince Edward Island, $2,500 in New Brunswick, $2,630 in Newfoundland, $2,750 in Manitoba, $3,500 in Saskatchewan and $6,658 in British Columbia.
There is no cap on Ontario’s estate tax. A $10 million estate would be taxed at $149,500.
What about other taxes deducted from my estate?
The Canada Revenue Agency assumes you sold all your property just before your death. This means your estate will pay capital gains tax on the assets you built up during your life and hoped to leave to your children.
Capital gains tax is also levied on the investments you held inside a tax-sheltered plan, such as an RRSP or RRIF. Registered plans are reregistered at the time of death.
Being married helps. If you leave assets to a surviving spouse, you can defer the capital gains tax until your spouse sells the assets or dies. However, the tax is higher if the assets increase in value by the time your spouse dies.
As well as Canadian taxes, you could face a tax bill from the U.S. government if you own a significant amount of U.S. assets, such as real estate, company stocks and certain bonds or government debt.
How can I avoid taxes on my assets when I die?
One way to reduce capital gains tax is to give away assets to family and friends before you die. Recipients do not pay tax on the value of gifts you distribute while alive, but may pay tax on income generated by your gift.
If you have substantial U.S. assets, you can sell them before you die (though this can result in a Canadian tax bill).
Capital gains tax can consume one-third to one-half of the value of your estate – a far bigger burden than Ontario’s 1.5 per cent estate administration tax.
Still, many people despise the Ontario tax, which tripled in the early 1990s. They try to avoid it by holding property with children as joint owners, thus keeping it out of the estate.
This tactic — which Corbin calls “the poor man’s will” — can result in fights among siblings after the death of a parent when only one sibling was made a joint owner.
There’s also a serious potential for elder abuse, he says, when a vulnerable parent is persuaded by an adult child to hold property jointly or transfer property outright to the child.
What else was included in McNaughton’s bill?
He wanted to remove the tax from estates under $50,000 and exclude the value of any debt — such as mortgages or loans — attached to a property for estate tax purposes.
He also wanted to repeal new Ontario rules enacted this year. Executors have 90 days to give information to the province after an estate is probated and a court certificate is issued appointing an executor. Failure to do so can result in fines or up to two years in jail.
Ontario collected $153 million in estate administration taxes in the 2014 fiscal year — an average $750 per estate. There were 20,000 probate applications last year.
Fining or jailing executors who miss a tight deadline “is a solution in search of a problem,” Corbin says.
Estate tax revenue was growing by 9.7 per cent a year before the NDP government tripled the rate. It could have reached $250 million today if nothing had changed.