In Ontario, estate administration tax, also known as probate fees, is one of the most common costs in estate planning. Estate administration taxes apply to most estates that go through probate, though probate is not always required.
These fees can impact the amount of inheritance your loved ones will receive. Use this estate administration tax calculator to help determine these costs, which may help you reduce your estate’s overall tax burden.
What is estate administration tax?
Estate administration tax is a tax calculated against the total value of a deceased person’s estate before any assets are distributed to the beneficiaries. This tax is mandatory and must be paid before the estate can be fully administered.
In Ontario, the estate administration tax is based on the value of the estate at the time of death, and it includes most assets, such as real estate, investments, and personal belongings.
This tax is important because it ensures the legal and financial aspects of an estate are properly managed. While it may seem like an additional burden during an already difficult time, understanding how estate administration tax works is important to creating your estate plan.
Key points about estate administration tax:
- Probate and associated taxes apply to most estates in Ontario that own real estate
- The tax is calculated on the total value of the deceased’s estate, including all assets and properties
- Estates valued below $50,000 are exempt from this tax
- The executor and estate trustee or estate administrator pays estate administration taxes using estate assets before settling the rest of the estate
- Estate administration tax in Ontario must be filed with the Ministry of Finance within 90 days after the Certificate of Appointment of Estate Trustee (grant of probate) is issued
While estate administration tax varies between provinces, in Ontario, it is one of the more significant costs related to settling an estate.
How is estate administration tax calculated?
There’s a straightforward formula to calculate estate administration tax. This formula takes into account all assets of the estate, including;
- real property located in Ontario,
- investments (except those with named beneficiaries),
- bank accounts,
- all vehicles appraised at fair market value,
- valuable collections,
- or jewellery
The Estate Administration Tax Act of Ontario outlines the formula for calculating estate administration tax as follows:
- No tax for estates with assets up to and including $50,000
- $15 tax for each $1,000 of the estate’s value for estates valued at more than $50,000 (rate of 1.5%)
Estate administration tax calculator
Use the estate administration tax calculator below to help you estimate the estate administration tax for your estate assets. Enter the total value of the estate, and the calculator will provide an estimate of the tax you’ll need to pay.
How to avoid estate administration tax in Ontario?
While estate administration tax is a requirement in Ontario, there are some strategies to reduce the amount of tax your estate may owe the government when it goes through probate.
These methods include:
- Gift assets before death: By gifting assets as early inheritances while you're alive, you can reduce your estate's overall value.
- Add another owner: Adding a joint owner (e.g., spouse or child) to assets like property or bank accounts helps bypass your estate, reducing its taxable value.
- Name beneficiaries directly: For financial assets like life insurance, RRSPs or registered education saving plans (RESPs), naming beneficiaries allows the funds to pass outside of your estate, avoiding probate and lowering the value of your estate.
Do beneficiaries pay tax on inheritance in Canada?
No, there is no inheritance tax in Canada, so beneficiaries do not pay taxes on their inheritance.
However, the estate is responsible for settling any outstanding taxes before distributing assets to beneficiaries. This includes taxes like the estate administration tax, income taxes on the deceased’s earnings, and capital gains taxes on the sale of assets.
If you inherited an asset subject to capital gains taxes, you may have to pay taxes later on. Learn more about how capital gains tax impacts inheritance here →
The truth about estate administration tax
These taxes can feel scary, especially if they’re required for your estate. But they don’t have to be overwhelming.
By understanding how these taxes are calculated, you can take control of your estate planning and uncover ways to reduce the taxes your estate owes. Remember, if you pass away without a will, probate and these taxes are unavoidable.
By making a will and estate plan, you increase your chances of avoiding probate and give yourself and your loved ones peace of mind for the future.
