Ontario’s Estate Information Return
Since the start of 2015, estate trustees (“executors”) in Ontario have been bound by new reporting requirements that require them to complete and file an “Estate Information Return” within ninety days after the issuance of a certificate of appointment of estate trustee (an “Estate Certificate” or “Probate”). The requirements appear daunting, but it is too early to tell whether they will be as exacting and daunting as they appear.
An “Estate Information Return” is a prescribed form requiring, among other things, a detailed and comprehensive list of every asset governed by the testator’s will (or by the Rules of Intestacy). This includes all vehicles; investments; bank accounts; real estate in Ontario; and all other property, such as art, jewelry, intellectual property, and household contents. The form must include their fair market value at the date of death.
An executor should ensure that the “Estate Information Return” is filed and that it include information that is both complete and accurate. If he or she fails to do so, an executor will have to file amended returns. He or she must file one within thirty days if, within four years of the issuance of an Estate Certificate, the executor discovers that the asset information in the return is incomplete or incorrect.
The government has the ability to find mistakes and inaccuracies in an Estate Information Return because of their new audit powers. Government inspectors have the power to inspect books, records, and property of the estate wherever they are kept. They also have the power to require executors to answer their questions and to assist with their audits. Through the process, the inspectors may produce their own valuations for estate assets that differ from the executor’s.
If the Minister of Revenue determines an estate’s value was underestimated, it can assess or reassess an estate regarding its tax payable under the EAT. The Minister may exercise this power within four years of the date the tax became payable, but in certain circumstances the limitation period may be extended indefinitely. This power to assess an estate well into the future provides a trustee with a powerful incentive to confirm the information in the return is accurate from the beginning.
An executor may object to or even appeal from an assessment or a reassessment, but these challenges could be expensive. If the costs of these challenges are reasonably and properly incurred in the administration of the estate, an executor would likely be entitled to reimbursement from the estate, but that would only mean the costs would shift to the beneficiaries. The challenge could prove not only expensive but also difficult because the executor would likely have the reverse-onus burden of displacing or demolishing the assumptions forming the basis of an assessment, as a taxpayer must do when challenging an income tax assessment.
If an estate is reassessed estate administration tax in the future, the executors will not be protected by a clearance certificate. A clearance certificate is a notice from the Canada Revenue Agency stating that income taxes owing have been paid by the estate, and, as such, the executors will not be personally liable for the payment of income taxes after final distribution. No such certificate exists in the EAT, but the Act does give trustees some protection by stating that estate administration tax is payable by them in the representative capacities only. This likely will not protect trustees from personal liability if sued by a beneficiary for the costs associated with additional tax assessed on the estate, a prospect that might cause them to delay distributing the estate while they await more certain asset valuations.
Executors might not only be pursued by beneficiaries but also be pursued by the tax authorities. Because of the 2013 amendments to the EAT, executor now face the prospect of being either fined or even imprisoned for two years for failing to file a return or for making a false or misleading statement on one. If they filed a return with a false or misleading statement, they can raise a due diligence defence if they “did not know that the statement or omission was false or misleading” and could not have known in the exercise of reasonable diligence.
For more information about the Estate Information Return, Visit the Ontario government’s website here.