On March 29, the Ontario government introduced its budget as Bill 173, the “Better Tomorrow for Ontario Act (Budget Measures), 2011”. In the middle of Bill 173, at Schedule 14, are several small but very important changes to the Estate Administration Tax Act, 1998, the statute that governs Ontario’s probate tax. While the changes will not be effective until January 2013, they are significant enough to cause some concern among the estates community.
There are two primary issues. First, the Minister of Revenue will have the authority to require a separate form to be filed on every probate application. However, there has been no indication yet as to what the form will look like or how easy or difficult it will be to complete. At the moment, the legislation simply states that the estate representative will provide the Minister with such information as the Minister requests.
Second, and of more concern, the Minister has been given powers of assessment to go back up to four years if he or she thinks that the probate application was filed incorrectly, inaccurately or untruthfully. The legislation does not contemplate any sort of clearance certificate similar to what estate representatives can obtain on income tax filings. The legislation is also unclear about the personal liability of an executor. For example, what happens if the executor distributes the estate properly, believing everything to have been filed correctly, and is reassessed two years later? Is it only the estate that will be liable for taxes, or will the executor be liable as well?
This bill passed second reading on April 14, and will likely pass third reading with few changes. While it will be some time before it takes effect, a likely result will be more people trying to avoid probate in order to stay out of these rules. While probate avoidance makes sense in certain situations, it can often lead to more taxes elsewhere, or at the very least more confusion. More punitive legislation that encourages probate avoidance cannot be a good thing.