Holding Ontario Real Estate Through an Estate: Estate Administration Tax, Probate and Title Planning

This note is for families who own Toronto property, whether a principal residence, a condominium or an income property, and want to understand what happens to it when an owner dies. Short answer: Ontario charges Estate Administration Tax on the value of an estate when an estate certificate is issued, and for income tax the deceased is considered to have sold their property just before death. How title is held, how the wills are structured and how well the records are kept all shape the outcome.

Links to the official sources are included throughout. Your lawyer and accountant should confirm how each point applies to your family.

What is Ontario's Estate Administration Tax, and how is it calculated?

Estate Administration Tax is often referred to as probate fees. Ontario charges it on the value of an estate when an estate certificate, previously called "letters probate" or "letters of administration," is applied for and issued. According to Ontario's Estate Administration Tax page, if an estate certificate is not applied for or not issued, no tax is owed.

For applications made on or after January 1, 2020, the calculation is:

• $0 on the first $50,000 of the estate's value, and
• $15 for every $1,000, or part thereof, above $50,000.

The estate value is rounded up to the nearest thousand. On an estate valued at $1,500,000, the tax would be $15 × 1,450 = $21,750. The tax is paid by the estate, as a deposit with the application to the Superior Court of Justice.

For real estate, two points matter most:

• Ontario real estate is included at its appraised value at the date of death, even if the property later sells for more or less.
• Encumbrances on the property can be deducted. The province allows a mortgage, collateral mortgage or lien on the real estate to be deducted from its value. Other debts cannot, including real estate commissions, lines of credit, credit card debts and unregistered loans.

Real estate located outside Ontario is not included. After the certificate is issued, the estate representative must file an Estate Information Return with the Ministry of Finance within 180 calendar days.

Which assets typically pass outside the estate?

Ontario's guidance lists assets that are not included in the value of the estate. The most relevant to private clients are:

• Jointly owned assets that automatically pass to the surviving owner. Real estate held as joint tenants with a right of survivorship is the common example.
• Registered plans with a beneficiary designation, such as an RRSP, RRIF or TFSA, and insurance paid directly to a named beneficiary.

These are often discussed as ways to reduce Estate Administration Tax. The caveat is that legal title does not always settle who is entitled to the asset.

Why the Pecore decision matters for joint title

In Pecore v. Pecore, 2007 SCC 17, decided on May 3, 2007, the Supreme Court of Canada considered a father who had gratuitously placed assets in joint accounts with an adult daughter. The majority confirmed that the presumption of resulting trust is the general rule for gratuitous transfers. It also held that the presumption of advancement, under which a gift is presumed, does not apply to independent adult children.

In practical terms, if a parent adds an adult child to title for no consideration, the law starts from the presumption that the child holds the property in trust for the parent, and therefore for the parent's estate. It is then up to the child to show that a gift was intended. A family that adds a child to title to save Estate Administration Tax, without documenting the intention, may find the property treated as part of the estate after all.

Pecore concerned bank and investment accounts, but the Court framed the presumption in terms of gratuitous transfers generally. A family considering a change to how a Toronto home is titled should have counsel document the intention at the time of the transfer and review the tax consequences before anything is registered.

Can multiple wills reduce Estate Administration Tax?

Ontario recognises the use of more than one will: a primary will that is submitted for an estate certificate, and a secondary will for assets the estate trustees can deal with without one.

The leading decision is Granovsky Estate v. Ontario, decided by the Ontario Court (General Division) on February 12, 1998. The court held that the trustees did not have to submit the secondary will to probate or pay probate fees on the value of the assets it governed.

The province's current guidance reflects this. Where the court issues a certificate of appointment limited to the assets referred to in a will, only the assets in that will are included in the value of the estate.

Which assets can be placed in a secondary will is a drafting question for your estate lawyer, and it should be revisited whenever the family's holdings change.

How is real estate taxed at death?

Separately, federal income tax applies on the final return. The CRA states that "when a person dies, they are considered to have sold all their property just prior to death, even though there is no actual disposition or sale." The deemed proceeds are the fair market value on the date of death, which can produce a capital gain on a condominium or income property that has risen in value.

Two features soften this:

• Spousal rollover. Property transferred to a surviving spouse or common-law partner who is a resident of Canada at the time of death may not result in a capital gain or loss on the final return. The gain is deferred until the survivor sells or is deemed to sell.
• Principal residence exemption. If the deceased owned a principal residence, some or all of the gain on it may be exempt. The CRA notes that a family can designate only one home as its principal residence for each year. The legal representative makes the designation on the final return using Schedule 3 and Form T1255.

The principal residence exemption and investment property are covered in more detail in Capital Gains Tax on Investment Property in Canada.

What changes when executors or beneficiaries live outside Canada?

For tax purposes, the CRA treats an estate as a trust, and a trust resides "where the central management and control of the trust actually takes place." Where the estate trustees manage the estate from outside Canada, the estate itself may be non-resident.

A non-resident that disposes of taxable Canadian property, which includes real property situated in Canada, must notify the CRA under section 116 of the Income Tax Act, either before the sale or within 10 days after it. If no certificate of compliance is obtained, the purchaser is entitled to withhold 25% of the proceeds, or 50% on certain types of property, less any certificate limit. CRA guidance (IC72-17R6) states that section 116 does not apply to the deemed disposition on death itself, or to property transferred or distributed on or after death as a consequence of it. A later sale of a Toronto property by a non-resident estate is a different matter, and the timing of a closing should allow for the clearance process.

For owners and families on both sides of the border, see Cross-Border Real Estate Tax: Canada and US Explained. Beneficiaries abroad who are considering buying in Ontario in their own right should also review Ontario's foreign buyer rules and NRST.

Practical points on title and records

• Know how each property is titled. Whether a property passes automatically to a surviving joint owner or through the estate depends on how title is held. Confirm the form of ownership on the registered title rather than relying on memory.
• Document any gratuitous transfer. After Pecore, a written record made at the time of a transfer to an adult child, stating whether a gift was intended, can be important evidence.
• Keep a cost base file. The CRA explains that adjusted cost base includes acquisition costs such as commissions and legal fees, and "capital expenditures, such as the cost of additions and improvements to the property." Maintenance and repairs cannot be added. A file with the purchase statement of adjustments, renovation invoices and any principal residence designations will save the executors time.
• Keep an up-to-date list of encumbrances. Mortgages, collateral mortgages and liens reduce the value for Estate Administration Tax; most other debts do not.
• Review when holdings change. A new purchase, a sale or a refinancing can make an existing will structure out of date.

How I work with your advisers

My role is on the real estate side: preparing a confidential market valuation that the estate's advisers can consider alongside any formal appraisal they require, and planning a sale with the timing the estate requires. I work alongside each client's estate lawyer and accountant, who advise on the structure and the tax. For a confidential conversation about a property held in an estate, I can be reached through the contact page.

Frequently asked questions

How much is Estate Administration Tax in Ontario?

For estate certificate applications made on or after January 1, 2020, there is no tax on the first $50,000 of the estate's value, and $15 for every $1,000, or part thereof, above $50,000. The value is rounded up to the nearest thousand.

Is a mortgage deducted from the value of a house for Estate Administration Tax?

Yes. Ontario allows an encumbrance such as a mortgage, collateral mortgage or lien to be deducted from the value of real estate in Ontario that is included in the estate. Other debts, such as credit cards, lines of credit and real estate commissions, cannot be deducted.

Does adding my adult child to title avoid probate?

Property held in joint tenancy that passes automatically to the surviving owner is not included in the estate's value. However, under Pecore v. Pecore (2007), a gratuitous transfer to an adult child is presumed to be held in trust for the parent unless the child shows a gift was intended. Counsel should document the intention and review the tax consequences before any change to title.

Is a home deemed sold when the owner dies?

For income tax purposes, the CRA considers a person to have sold all their property just before death at fair market value. A transfer to a surviving spouse or common-law partner resident in Canada may defer the gain, and the principal residence exemption may exempt some or all of the gain on a qualifying home.

Sources

• Estate Administration Tax (Government of Ontario)
• Pecore v. Pecore, 2007 SCC 17 (Supreme Court of Canada)
• Taxable capital gains on property, investments, and belongings (deceased persons) (Canada Revenue Agency)
• Principal residence and other real estate (Canada Revenue Agency)
• Income Tax Folio S6-F1-C1, Residence of a Trust or Estate (Canada Revenue Agency)
• Disposing of or acquiring certain Canadian property (Canada Revenue Agency)
• IC72-17R6, Procedures concerning the disposition of taxable Canadian property by non-residents of Canada, section 116 (Canada Revenue Agency)
• Definitions for capital gains (Canada Revenue Agency)