As explained in more detail below, the provincial government introduced legislative amendments in 2011 that impact the taxation and administration of estates. Some of the process and procedure pertaining to those amendments were to be drafted in regulations at some point in the future.
Between 2011 and 2014, people who are passionate and knowledgeable about estate administration and taxation (Barry Corbin) suggested further amendments that would make the 2011 amendments fair and practicable.
The draft regulations have now been posted, and are intended to operationalize the 2011 amendments.
Do the draft regulations help us or hinder us? Read on.
Background
Ontario’s 2011 Budget (“Bill 173”) received royal assent on May 12, 2011. It made numerous amendments to existing Acts, including the Estate Administration Tax Act, 1998 (the “Act”). In particular, Bill 173 included the following amendments to the Act:
- Pursuant to section 4.1(1) through (3) of the Act, anyone who applies for a certificate of appointment as estate trustee on or after January 1, 2013 must give the Minister of Revenue information about the deceased person (the exact information required is to be prescribed by the Minister of Finance);
- Pursuant to 4.2 through 4.5 of the Act, the Minister of Revenue may assess or re-assess an estate in respect of its tax payable under this Act at any time within four years of the date the tax is payable (note that in 2011, the Ministry of Revenue was merged into the Ministry of Finance);
- Pursuant to 4.3 of the Act, certain sections of the Retail Sales Tax Act apply to the above-referenced assessments or re-assessments (sections that pertain to the process the government must follow when notifying a person of an assessment, and confirming that payment is due immediately).
Draft Regulations
The provincial government has now posted a draft version of a new regulation under the Act which sets out the details that were not included in Bill 173. The draft regulation apply as of January 1, 2015.
Section 3(2) of the draft regulation requires the following information regarding the deceased must be submitted by estate representatives to the Minister of Finance within 30 days after an estate certificate is issued:
1. Name.
2. Address of fixed place of abode.
3. Date of birth or, if not known, the approximate date or year of birth.
4. Date of death.
5. Marital status at the time of death.
6. Date of last will, if the deceased person made a will.
7. A complete list of the assets of the deceased person used to determine the value of the estate, including the following information with respect to each asset:
i. The actual value of the asset or, if the actual value is unavailable, the estimated value of the asset at the time of the deceased person’s death.
ii. If the asset is real property,
A. the full address of the real property, including, where applicable, the street number, street name, street direction, unit number, rural route number, town or city, and postal code,
B. the actual value of any encumbrances on the real property,
C. the assessment roll number of the real property that is created or used under the Assessment Act, and
D. the property identifier mentioned in subsection 141 (2) of the Land Titles Act or subsection 21 (2) of the Registry Act, if any, of the real property.
iii. If the asset is cash (including cash on deposit with a Canadian or foreign bank, a broker, a credit union or caisse populaire, a loan corporation or a trust corporation), a guaranteed investment certificate, a loan receivable, a security (including common shares, preferred shares, bonds, treasury bills and mutual funds), a contract of insurance without a named beneficiary, a derivative (including options, futures contracts, rights or warrants), an interest in a partnership or any other investment, a full description of the asset, including,
A. the type of asset,
B. the number of units held at the time of the deceased person’s death, if applicable,
C. other particulars of the asset, such as the particular series of bonds or the particular class of shares,
D. the name and contact information of the deceased person’s adviser, dealer, financial institution or other person holding the asset on behalf of the deceased person, if applicable, and
E. the account number in relation to the asset assigned by the person or institution referred to in sub-subparagraph D, if applicable.
iv. If the asset is not an asset referred to in subparagraph ii or iii, detailed information about the asset, including,
A. the type of asset, such as a vehicle, and
B. particulars of the asset, such as the vehicle identification number.
v. If the deceased person was known by a name that is different from the name set out in paragraph 1 and if the asset is registered or held under that other name, the asset and the other name of the deceased person.
vi. If the asset is owned by the deceased person as tenant-in-common, the asset and the percentage that is owned by the deceased person at the time of death.
8. The amount of tax owing or paid under section 2 of the Act by the estate of the deceased person or the amount deposited under section 3 of the Act by the applicant referred to in that section.
9. The name and contact information of every estate representative of the deceased person.
10. The address of the court where the application for a certificate of appointment of estate trustee was made.
11. The type of application that was made by the estate representative in respect of the estate of the deceased person under Rule 74.04, 74.05, 74.05.1, 74.08 or 74.09 of the Rules of Civil Procedure.
12. The court file number that is assigned to the application referred to in paragraph 11.
13. The date on which the estate certificate was issued to the estate representative.
14. If the tax or deposit was calculated based on the estimated value of the estate, the date on which the estate representative gave an undertaking required under subsection 3 (4) of the Act and a copy of the undertaking.
15. If the Superior Court of Justice issued the estate certificate under subrule 74.13 (3) of the Rules of Civil Procedure, without payment of a deposit required under section 3 of the Act,
i. a copy of the order that was obtained under subsection 4 (1) of the Act,
ii. details about the security furnished to the court under subsection 4 (2) of the Act, and
iii. copies of any material that was submitted to the court in support of the request for the order.
16. Any other information about the deceased person that is necessary for the determination of the amount of tax owing or paid under section 2 of the Act.
An amended return is required to be filed no later than 30 days after the occurrence of the following events:
• The estate representative becomes aware that certain information given to the Minister of Finance is incorrect or incomplete.
• A full or partial refund of a deposit or tax imposed under the Act is received by the estate representative after giving the return to the Minister of Finance.
• Additional tax imposed under the Act is paid or an additional amount is deposited by the estate representative after giving the return to the Minister of Finance.
• After fulfilling the undertaking described in subsection 4 (3) of the Act.
• A statement disclosing subsequently discovered property of the estate is delivered under subsection 32 (2) of the Estates Act.
Commentary
Some estate representatives may have difficulty meeting the initial 30-day deadline for the provision of the prescribed information. In addition, the requirement to file updated returns within 30 days of becoming aware of any new information may necessitate the filing of any number of revised information returns during the course of an administration….at the expense of the estate.
Indeed, many private institutions and government offices will not release information to an estate representative until after the representative has obtained an estate certificate. As a result, the estate representative will be unable able to gather the requisite information in advance of the issuing of a certificate.
As we all know, once a representative has the certificate, it can take weeks for those private institutions and public offices to process requests for information. When the various institutions and public offices do disclose, they do not do so in a synchronized manner. This may result in administrators having to file a new return every 30 days for the first six months or so after they receive the estate certificate.
Some of the sub-sections would benefit from more precise drafting. For example, section 7-iv provides that in respect of some assets, the estate representative must provide the type and particulars of that asset. Anyone who has administered an estate or accounted to beneficiaries will know that “particulars” can be interpreted to mean any and all manner of different details; it can be impossible to anticipate what, exactly, is required.
While the draft regulations may strike some as being overly inclusive of detail, others may be disappointed by the absence of information. Some practitioners had concerns about the 2011 amendments that do not appear to be addressed by the current draft regulations. For example, when the 2011 amendments were being debated in parliament, Barry Corbin, a veteran estates solicitor in Toronto, made submissions to the Standing Committee on Finance and Economic Affairs. Mr. Corbin’s submissions explain why anyone who may one day be responsible for administering an estate in Ontario should be concerned about the 2011 amendments.
Mr. Corbin’s submissions are excerpted below:
[Bill 173] proposes to make a number of changes to the Estate Administration Tax Act, and I’d like to beg the committee’s indulgence while I discuss what exactly estate administration tax is, for those of you who may not have occasion to be involved in the administration of an estate. They used to be called probate fees.
…
This tax is levied on the value of an estate. If a person dies with a will and submits the will for probate, you look at the value of the property that is governed by that will. If a person dies without a will, you have to make an application in order to be able to take control of the estate. In either case, you’re going to be paying estate administration tax. It’s levied at $5 per $1,000 for estate value up to the first $50,000, and $15 per $1,000 of estate value in excess of that amount. There is no cap on that tax, which means, for example, if you had a $10-million estate that had to be probated, you would be paying $149,500 in estate administration tax.
Part of the application involves the applicant swearing what the value of the estate is. In the materials, I’ve got a page, an extract from the application. You’ll see that there are just two boxes there: One says, “What’s the value of the personal property?”; the other one says, “What’s the value of realty, net of any encumbrances that there may be?” There is no obligation to provide an inventory or an itemization of the assets and their values that come to those totals. There are certain things that are excluded: life insurance payable to a named beneficiary; RRSPs; RIFs; tax-free savings accounts that are payable to named beneficiaries; real property outside the province; and property that is held jointly with another person where it passes, by right of survivorship, to the other person or persons.
…
Now—and this is also a matter of speculation—why this schedule 14 is here at all: It’s my view that the government has looked at the anemic revenues they’ve been getting and said, “What can we do to get more revenues?” To me, exhibit A is schedule 14. That schedule involved a bunch of amendments to be made to the Estate Administration Tax Act.
What effectively is new is that instead of just submitting your application to the court office, saying, “Here are the numbers,” and paying the estate administration tax, you file a new form, which hasn’t yet been developed, with the Minister of Revenue. I think it’s fairly clear that what you’re going to have to file is an inventory of assets and a value attributed to every single asset in that inventory. That way, the Minister of Revenue will be able to say, “Aha. We think this is undervalued. We’re going to have a look at that, and if we want to bring in our own valuators or whatever, we will assess the estate for more estate administration tax than was actually paid initially.” There’s nothing wrong with that, in principle, but the idea that people have been under-reporting all this time certainly is what I see there.
You’re all familiar with a mechanism in the Income Tax Act: When you fight with CRA, you get a notice of assessment, you file an objection, you get a confirmation, and you go on to the tax court, wherever it might be. A similar device is going to be in the new statute here, with all these amendments. What they’re doing is taking the Retail Sales Tax Act, which already has a mechanism for assessing or reassessing a vendor, and they’re just importing it holus-bolus into the Estate Administration Tax Act. I think the drafters simply did that because they wanted to save time and not reinvent the wheel.
There’s a problem, because when they did that, they missed something that’s in the Income Tax Act that’s not here, and this is really the focus of what I wanted to bring to your attention. In the Income Tax Act, the executor or estate trustee is responsible, before distributing the whole estate, to make sure that all the taxes have been paid. If a distribution is made and there’s tax subsequently found to be owing, the estate trustee is on the hook personally, and then we’ll have to go to the other people and say, “Can I have some of that money back?”
The minister has three years to reassess any particular return. However, the estate trustee doesn’t have to wait that long if he wants to distribute the estate. He puts in a request saying, “I’d like a clearance certificate, please,” and presumably that will come out in due course. Once the estate trustee has a clearance certificate in his or her hands, they can distribute the estate, because that will say that there’s no more tax owing at the moment, as far as we’re concerned. At that point, you can distribute the whole estate. Then, if the minister, within that time frame, says, “Whoops. We made a mistake. We have to reassess,” the estate trustee is off the hook. He’s got the clearance certificate. If the government wants money back, more taxes, they’ve got to go after all the people to whom the estate was distributed.
That’s not in the proposed amendments here. It says that the minister can, at any time up to four years—and afterwards if there’s neglect, wilful default and all that stuff, but for at least four years—go back and say, “You know what? We think there’s more tax owing here.”
It’s the estate trustee who is entitled—nobody else—to dispute the assessment. I have to assume that means it’s the estate trustee who’s got to come up with the money. Well, if I’m an estate trustee and I’m thinking I want to distribute the estate but I may have to wait four years, I don’t want to have to go chasing after the beneficiaries to get the money back if it turns out there’s more estate administration tax owing. So I’m going to say to the beneficiaries, “Sorry, you’re going to have to wait. I know the will says ‘distribution,’ and I’ve done everything I have to do, but you’re going to have to wait another three or four years until that period goes by.” This is the problem. There is no mechanism in there that clearly protects the estate trustee, that allows the estate trustee to ask the Minister of Revenue, “Can you please give me a clearance certificate so I can make a distribution?”
I have to imagine that it’s the estate trustee they’re going to go after. It’s hard to think of an effective tax collection mechanism that would require the Minister of Revenue to chase all the beneficiaries across the country and around the globe to get back the tax that they decided was owing after the distribution of the estate. It really comes down to that.
If you’re going through clause-by-clause study, if you don’t do anything else with schedule 14, I strongly urge you to tell the drafters they’re going to have to put in a clearance certificate mechanism in order to prevent a terrible problem arising in every estate to be administered; namely, “Sorry; you’re going to have to wait a few years.” In fact, I would think that the trust companies might well not be happy about that turn of events, having to explain to all those expectant beneficiaries why they can’t distribute the estate in a timely way.
You can see from the current draft regulations that the government has not included any provisions that would permit estate representatives to obtain a clearance certificate within that 4-year window.
On the bright side, estate litigators will find the information returns a useful source of information in respect of the fiduciary’s accountability. From time to time we find that some estate representatives do not have these sorts of details at their fingertips, which means the process of obtaining full and frank disclosure from certain fiduciaries can be time consuming. The regulations require estate representatives to gather those details right away rather than wait until requests are made by those who have a financial interest in the estate.
Conclusion
It may not be realistic to expect estate representatives to have all the requisite details about an estate within 30 days of the issuance of an estate certificate. Many private institutions and public offices will not release any details to an estate representative without an estate certificate. Some disclosure can be obtained readily, and some cannot. It follows that estate representatives may therefore have no choice but to file numerous updated information returns throughout the administration of the estate, which efforts will represent an increase in administration costs.
The draft regulations do not permit estate representatives to obtain a clearance certificate from the provincial Minister of Finance, which may result in further delays in administration, especially if the estate trustee has any reason to anticipate an assessment or re-assessment (say, for example, if they’ve had to file numerous amended information returns).
The draft regulations were released in draft form on November 7, 2014, and the Ministry of Finance is inviting your commentary within 11 days — before November 28, 2014. The government invites your comments by email, as you can see from the text at the bottom of this page on Ontario’s online Regulation Registry. However, as of the date this blog was written (November 11, 2014), clicking on the link labelled “Comment on this proposal via email” simply rerouted this writer to a blank page on the regulation registry website.
If these regulations are enacted, estate litigators will certainly make good use of the information returns. We shall see if the information returns actually serve to speed up the process of fiduciary accountability.
We will follow these regulations with interest. We remind readers that the Law Commission of Ontario is currently reviewing the laws governing the administration of estates; their website and feedback links are here: http://lco-cdo.org/en/small-estates-consultation-paper-sectionIX.
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Written by: WEL Partners
Posted on: November 20, 2014
Categories: Commentary
As explained in more detail below, the provincial government introduced legislative amendments in 2011 that impact the taxation and administration of estates. Some of the process and procedure pertaining to those amendments were to be drafted in regulations at some point in the future.
Between 2011 and 2014, people who are passionate and knowledgeable about estate administration and taxation (Barry Corbin) suggested further amendments that would make the 2011 amendments fair and practicable.
The draft regulations have now been posted, and are intended to operationalize the 2011 amendments.
Do the draft regulations help us or hinder us? Read on.
Background
Ontario’s 2011 Budget (“Bill 173”) received royal assent on May 12, 2011. It made numerous amendments to existing Acts, including the Estate Administration Tax Act, 1998 (the “Act”). In particular, Bill 173 included the following amendments to the Act:
Draft Regulations
The provincial government has now posted a draft version of a new regulation under the Act which sets out the details that were not included in Bill 173. The draft regulation apply as of January 1, 2015.
Section 3(2) of the draft regulation requires the following information regarding the deceased must be submitted by estate representatives to the Minister of Finance within 30 days after an estate certificate is issued:
1. Name.
2. Address of fixed place of abode.
3. Date of birth or, if not known, the approximate date or year of birth.
4. Date of death.
5. Marital status at the time of death.
6. Date of last will, if the deceased person made a will.
7. A complete list of the assets of the deceased person used to determine the value of the estate, including the following information with respect to each asset:
i. The actual value of the asset or, if the actual value is unavailable, the estimated value of the asset at the time of the deceased person’s death.
ii. If the asset is real property,
A. the full address of the real property, including, where applicable, the street number, street name, street direction, unit number, rural route number, town or city, and postal code,
B. the actual value of any encumbrances on the real property,
C. the assessment roll number of the real property that is created or used under the Assessment Act, and
D. the property identifier mentioned in subsection 141 (2) of the Land Titles Act or subsection 21 (2) of the Registry Act, if any, of the real property.
iii. If the asset is cash (including cash on deposit with a Canadian or foreign bank, a broker, a credit union or caisse populaire, a loan corporation or a trust corporation), a guaranteed investment certificate, a loan receivable, a security (including common shares, preferred shares, bonds, treasury bills and mutual funds), a contract of insurance without a named beneficiary, a derivative (including options, futures contracts, rights or warrants), an interest in a partnership or any other investment, a full description of the asset, including,
A. the type of asset,
B. the number of units held at the time of the deceased person’s death, if applicable,
C. other particulars of the asset, such as the particular series of bonds or the particular class of shares,
D. the name and contact information of the deceased person’s adviser, dealer, financial institution or other person holding the asset on behalf of the deceased person, if applicable, and
E. the account number in relation to the asset assigned by the person or institution referred to in sub-subparagraph D, if applicable.
iv. If the asset is not an asset referred to in subparagraph ii or iii, detailed information about the asset, including,
A. the type of asset, such as a vehicle, and
B. particulars of the asset, such as the vehicle identification number.
v. If the deceased person was known by a name that is different from the name set out in paragraph 1 and if the asset is registered or held under that other name, the asset and the other name of the deceased person.
vi. If the asset is owned by the deceased person as tenant-in-common, the asset and the percentage that is owned by the deceased person at the time of death.
8. The amount of tax owing or paid under section 2 of the Act by the estate of the deceased person or the amount deposited under section 3 of the Act by the applicant referred to in that section.
9. The name and contact information of every estate representative of the deceased person.
10. The address of the court where the application for a certificate of appointment of estate trustee was made.
11. The type of application that was made by the estate representative in respect of the estate of the deceased person under Rule 74.04, 74.05, 74.05.1, 74.08 or 74.09 of the Rules of Civil Procedure.
12. The court file number that is assigned to the application referred to in paragraph 11.
13. The date on which the estate certificate was issued to the estate representative.
14. If the tax or deposit was calculated based on the estimated value of the estate, the date on which the estate representative gave an undertaking required under subsection 3 (4) of the Act and a copy of the undertaking.
15. If the Superior Court of Justice issued the estate certificate under subrule 74.13 (3) of the Rules of Civil Procedure, without payment of a deposit required under section 3 of the Act,
i. a copy of the order that was obtained under subsection 4 (1) of the Act,
ii. details about the security furnished to the court under subsection 4 (2) of the Act, and
iii. copies of any material that was submitted to the court in support of the request for the order.
16. Any other information about the deceased person that is necessary for the determination of the amount of tax owing or paid under section 2 of the Act.
An amended return is required to be filed no later than 30 days after the occurrence of the following events:
• The estate representative becomes aware that certain information given to the Minister of Finance is incorrect or incomplete.
• A full or partial refund of a deposit or tax imposed under the Act is received by the estate representative after giving the return to the Minister of Finance.
• Additional tax imposed under the Act is paid or an additional amount is deposited by the estate representative after giving the return to the Minister of Finance.
• After fulfilling the undertaking described in subsection 4 (3) of the Act.
• A statement disclosing subsequently discovered property of the estate is delivered under subsection 32 (2) of the Estates Act.
Commentary
Some estate representatives may have difficulty meeting the initial 30-day deadline for the provision of the prescribed information. In addition, the requirement to file updated returns within 30 days of becoming aware of any new information may necessitate the filing of any number of revised information returns during the course of an administration….at the expense of the estate.
Indeed, many private institutions and government offices will not release information to an estate representative until after the representative has obtained an estate certificate. As a result, the estate representative will be unable able to gather the requisite information in advance of the issuing of a certificate.
As we all know, once a representative has the certificate, it can take weeks for those private institutions and public offices to process requests for information. When the various institutions and public offices do disclose, they do not do so in a synchronized manner. This may result in administrators having to file a new return every 30 days for the first six months or so after they receive the estate certificate.
Some of the sub-sections would benefit from more precise drafting. For example, section 7-iv provides that in respect of some assets, the estate representative must provide the type and particulars of that asset. Anyone who has administered an estate or accounted to beneficiaries will know that “particulars” can be interpreted to mean any and all manner of different details; it can be impossible to anticipate what, exactly, is required.
While the draft regulations may strike some as being overly inclusive of detail, others may be disappointed by the absence of information. Some practitioners had concerns about the 2011 amendments that do not appear to be addressed by the current draft regulations. For example, when the 2011 amendments were being debated in parliament, Barry Corbin, a veteran estates solicitor in Toronto, made submissions to the Standing Committee on Finance and Economic Affairs. Mr. Corbin’s submissions explain why anyone who may one day be responsible for administering an estate in Ontario should be concerned about the 2011 amendments.
Mr. Corbin’s submissions are excerpted below:
[Bill 173] proposes to make a number of changes to the Estate Administration Tax Act, and I’d like to beg the committee’s indulgence while I discuss what exactly estate administration tax is, for those of you who may not have occasion to be involved in the administration of an estate. They used to be called probate fees.
…
This tax is levied on the value of an estate. If a person dies with a will and submits the will for probate, you look at the value of the property that is governed by that will. If a person dies without a will, you have to make an application in order to be able to take control of the estate. In either case, you’re going to be paying estate administration tax. It’s levied at $5 per $1,000 for estate value up to the first $50,000, and $15 per $1,000 of estate value in excess of that amount. There is no cap on that tax, which means, for example, if you had a $10-million estate that had to be probated, you would be paying $149,500 in estate administration tax.
Part of the application involves the applicant swearing what the value of the estate is. In the materials, I’ve got a page, an extract from the application. You’ll see that there are just two boxes there: One says, “What’s the value of the personal property?”; the other one says, “What’s the value of realty, net of any encumbrances that there may be?” There is no obligation to provide an inventory or an itemization of the assets and their values that come to those totals. There are certain things that are excluded: life insurance payable to a named beneficiary; RRSPs; RIFs; tax-free savings accounts that are payable to named beneficiaries; real property outside the province; and property that is held jointly with another person where it passes, by right of survivorship, to the other person or persons.
…
Now—and this is also a matter of speculation—why this schedule 14 is here at all: It’s my view that the government has looked at the anemic revenues they’ve been getting and said, “What can we do to get more revenues?” To me, exhibit A is schedule 14. That schedule involved a bunch of amendments to be made to the Estate Administration Tax Act.
What effectively is new is that instead of just submitting your application to the court office, saying, “Here are the numbers,” and paying the estate administration tax, you file a new form, which hasn’t yet been developed, with the Minister of Revenue. I think it’s fairly clear that what you’re going to have to file is an inventory of assets and a value attributed to every single asset in that inventory. That way, the Minister of Revenue will be able to say, “Aha. We think this is undervalued. We’re going to have a look at that, and if we want to bring in our own valuators or whatever, we will assess the estate for more estate administration tax than was actually paid initially.” There’s nothing wrong with that, in principle, but the idea that people have been under-reporting all this time certainly is what I see there.
You’re all familiar with a mechanism in the Income Tax Act: When you fight with CRA, you get a notice of assessment, you file an objection, you get a confirmation, and you go on to the tax court, wherever it might be. A similar device is going to be in the new statute here, with all these amendments. What they’re doing is taking the Retail Sales Tax Act, which already has a mechanism for assessing or reassessing a vendor, and they’re just importing it holus-bolus into the Estate Administration Tax Act. I think the drafters simply did that because they wanted to save time and not reinvent the wheel.
There’s a problem, because when they did that, they missed something that’s in the Income Tax Act that’s not here, and this is really the focus of what I wanted to bring to your attention. In the Income Tax Act, the executor or estate trustee is responsible, before distributing the whole estate, to make sure that all the taxes have been paid. If a distribution is made and there’s tax subsequently found to be owing, the estate trustee is on the hook personally, and then we’ll have to go to the other people and say, “Can I have some of that money back?”
The minister has three years to reassess any particular return. However, the estate trustee doesn’t have to wait that long if he wants to distribute the estate. He puts in a request saying, “I’d like a clearance certificate, please,” and presumably that will come out in due course. Once the estate trustee has a clearance certificate in his or her hands, they can distribute the estate, because that will say that there’s no more tax owing at the moment, as far as we’re concerned. At that point, you can distribute the whole estate. Then, if the minister, within that time frame, says, “Whoops. We made a mistake. We have to reassess,” the estate trustee is off the hook. He’s got the clearance certificate. If the government wants money back, more taxes, they’ve got to go after all the people to whom the estate was distributed.
That’s not in the proposed amendments here. It says that the minister can, at any time up to four years—and afterwards if there’s neglect, wilful default and all that stuff, but for at least four years—go back and say, “You know what? We think there’s more tax owing here.”
It’s the estate trustee who is entitled—nobody else—to dispute the assessment. I have to assume that means it’s the estate trustee who’s got to come up with the money. Well, if I’m an estate trustee and I’m thinking I want to distribute the estate but I may have to wait four years, I don’t want to have to go chasing after the beneficiaries to get the money back if it turns out there’s more estate administration tax owing. So I’m going to say to the beneficiaries, “Sorry, you’re going to have to wait. I know the will says ‘distribution,’ and I’ve done everything I have to do, but you’re going to have to wait another three or four years until that period goes by.” This is the problem. There is no mechanism in there that clearly protects the estate trustee, that allows the estate trustee to ask the Minister of Revenue, “Can you please give me a clearance certificate so I can make a distribution?”
I have to imagine that it’s the estate trustee they’re going to go after. It’s hard to think of an effective tax collection mechanism that would require the Minister of Revenue to chase all the beneficiaries across the country and around the globe to get back the tax that they decided was owing after the distribution of the estate. It really comes down to that.
If you’re going through clause-by-clause study, if you don’t do anything else with schedule 14, I strongly urge you to tell the drafters they’re going to have to put in a clearance certificate mechanism in order to prevent a terrible problem arising in every estate to be administered; namely, “Sorry; you’re going to have to wait a few years.” In fact, I would think that the trust companies might well not be happy about that turn of events, having to explain to all those expectant beneficiaries why they can’t distribute the estate in a timely way.
You can see from the current draft regulations that the government has not included any provisions that would permit estate representatives to obtain a clearance certificate within that 4-year window.
On the bright side, estate litigators will find the information returns a useful source of information in respect of the fiduciary’s accountability. From time to time we find that some estate representatives do not have these sorts of details at their fingertips, which means the process of obtaining full and frank disclosure from certain fiduciaries can be time consuming. The regulations require estate representatives to gather those details right away rather than wait until requests are made by those who have a financial interest in the estate.
Conclusion
It may not be realistic to expect estate representatives to have all the requisite details about an estate within 30 days of the issuance of an estate certificate. Many private institutions and public offices will not release any details to an estate representative without an estate certificate. Some disclosure can be obtained readily, and some cannot. It follows that estate representatives may therefore have no choice but to file numerous updated information returns throughout the administration of the estate, which efforts will represent an increase in administration costs.
The draft regulations do not permit estate representatives to obtain a clearance certificate from the provincial Minister of Finance, which may result in further delays in administration, especially if the estate trustee has any reason to anticipate an assessment or re-assessment (say, for example, if they’ve had to file numerous amended information returns).
The draft regulations were released in draft form on November 7, 2014, and the Ministry of Finance is inviting your commentary within 11 days — before November 28, 2014. The government invites your comments by email, as you can see from the text at the bottom of this page on Ontario’s online Regulation Registry. However, as of the date this blog was written (November 11, 2014), clicking on the link labelled “Comment on this proposal via email” simply rerouted this writer to a blank page on the regulation registry website.
If these regulations are enacted, estate litigators will certainly make good use of the information returns. We shall see if the information returns actually serve to speed up the process of fiduciary accountability.
We will follow these regulations with interest. We remind readers that the Law Commission of Ontario is currently reviewing the laws governing the administration of estates; their website and feedback links are here: http://lco-cdo.org/en/small-estates-consultation-paper-sectionIX.
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