Estate administration tax in Canada: What you need to know

When a loved one passes away, there’s a lot to handle — financially and emotionally. When this happens, taxes – such as estate administration tax or probate fees – are the least of the things you would want to worry about. However, knowing them would greatly help when the time comes, whether you’re a named executor or just a concerned loved one. 

In this article, we’ll discuss the basics of estate administration taxes, including who pays them and how they are calculated. This article can be used by executors or concerned family members. Estate lawyers can also share this piece with their clients who might what to learn more about how the process goes.  

What is estate administration tax in Canada? 

When your loved one dies but has left a will, you may have to apply to the court for the will’s probate. Along with it is the application for the issuance of an estate certificate. Also called certificate of appointment of estate trustee, letters probate, or letters of administration, this certificate is issued when probate is eventually granted by the court. 

Each province and territory have their own laws and tax rates when it comes to estate administration tax or probate fees. This also applies to how each jurisdiction calls these taxes. Ontario, for instance, uses the term "estate administration tax," while the other provinces and territories simply call it "probate fees." 

Upon your application for an estate certificate is the payment of estate administration tax or probate fees, which is the tax that can be paid by and from the estate. This tax is based on the total value of all estate’s assets; in other words, all of the deceased’s properties at the time of death. 

While it seems that all applications for probate are covered by estate administration taxes or probate fees, there are exceptions based on the law of each province or territory. As such, it’s important to consult with your estate lawyer whether you need to pay taxes when your loved one’s will is probated. 

This video explains estate administration taxes in the context of Ontario’s laws: 

We’ll explain more about estate administration taxes below. If you have any questions about this tax, reach out to any of the best personal tax planning and estate lawyers in Canada as ranked by Lexpert. 

Who needs to pay estate administration taxes? 

Every person, usually the executor, who is applying for probate of the will being executed, must pay estate administration taxes or probate fees. This may be in addition to other taxes, such as capital gains taxes. 

These taxes are usually paid, as a deposit, upon application for probate or the necessary certificate to probate the will. Once the certificate is issued, the deposit becomes the tax payment; otherwise, it will be refunded to the taxpayer. 

Who is exempt from paying estate administration tax? 

Provincial and territorial tax and estate laws provide some exceptions on who is required to pay a probate fee or estate administration tax.  

Each has set a certain threshold that when the value of the estate is lower, then you won’t have to pay estate administration tax. For example, in British Columbia, if the value of the estate is below $25,000, no probate fees must be paid. However, you may still have to file certain returns even if you’re exempt from paying such tax. 

In Ontario, estate administration tax is not paid when you’re issued any of the following certificate: 

• Certificate of Appointment of Succeeding Estate Trustee with a Will 
• Certificate of Appointment of Succeeding Estate Trustee with a Will Limited to the Assets Referred to in the Will 
• Certificate of Appointment of Succeeding Estate Trustee without a Will 
• Certificate of Appointment of Estate Trustee During Litigation 

Again, only when you’re issued a Certificate of Appointment of Estate Trustee, or a Small Estate Certificate, that you will have to pay an estate administration tax in Ontario. 

For a general explanation about estate taxes, watch this video: 

Contact a Lexpert-ranked best personal tax planning and estate law firm in Canada for more details about paying estate taxes. 

How are estate administration taxes calculated? 

As a rule of thumb, everything owned by the deceased on the day of their death are taxed under the estate administration tax or probate fees. However, this does not include properties that are held for another person, aside from certain exclusions, under the provincial or territorial tax laws. 

To give you an idea of how estate administration taxes are computed, here's a walkthrough of the process under Ontario’s tax laws: 

1. Total value of the estate: Using their appraised fair market value, add all the assets and properties by the deceased at the time of death. 

• including: 

• domestic and foreign bank accounts 
• investments, where the deceased is the beneficiary 
• insurance, if proceeds are left to the estate of the deceased 
• intangible properties 
• vehicles and vessels, found in or out of Ontario 
• property of the deceased held in the name of another person 

• exceptions:  

• accounts (e.g. RPPs) naming a designated beneficiary 
• assets jointly owned automatically transferred to the other owner(s) 
• CPP Death Benefit 
• insurance to be paid to a named beneficiary 
• real estate outside of Ontario 

2. Deduct all the estate’s liabilities: Subtract all the liabilities owed by the estate to the total value of the estate, such as encumbrances (e.g. registered mortgages or liens) if the property is included in the estate of the deceased. 

• exceptions (cannot be deducted):  

• debts on credit card payments 
• debt owed on a vehicle 
• funeral expenses 
• lawyer’s fee 
• line of credit 
• loans and interest payments 
• real estate commissions 
• unregistered loans 

3. First $50,000 is exempt: Deduct $50,000 from the total value of the estate. It means that only the value above $50,000 is taxable for estate administration tax purposes. 

4. Apply the tax rate: After deducting the liabilities and the first $50,000, round up the value of the estate to the nearest thousand. Then, multiply the remaining value of the estate with the tax rate of 1.5% (or $15 per $1,000). The result is tax due for estate administration taxes. 

This list is not exhaustive, since it will all depend on the nature of the property owned by the deceased.  

Tax rates of probate fees in each province and territory 

Here’s a schedule of the tax rates for each provincial and territorial probate fees or estate administration tax, and what amounts are excluded from its computation: 

Note that Québec does not charge a probate fee per se, but the figures here are the court filing fees when applying for probate. 

Example of estate administration tax in Canada 

Using Ontario’s rules on estate administration tax, we’ll give an example of how it is calculated. Say, the value of the estate is $150,000. It’s assumed that we have already taken out all the deductions and exclusions resulting in an estate’s value of $150,000.  

We then exclude the first $50,000, which is somehow an exception. We’ll have a net of $100,000. This is now our base where the 1.5% tax rate will be applied on (or $15 per $1,000). 

$100,000 x 1.5% = $1,500 estate administration tax 

We’ll have the same result if we apply $15 per $1,000, where $100,000 / $1,000 x $15 = $1,500 

Are there ways to minimize an estate administration tax? 

One thing’s for sure — we'll all have to pay estate administration taxes when proper. Evading from paying this tax when it’s due, or manipulating your probate application to reduce your tax, is illegal. 

However, there are a few legal ways to reduce the impact of your estate administration tax before it becomes payable. Most of these would include estate planning done before you or your loved one has passed away. 

Those who violate the correct filing of estate administration tax will be penalized. Ontario’s law provides that penalties include a fine of $1,000 up to twice the tax payable by the estate, or imprisonment up to two years, or both. 

With the help of your estate planning lawyer, here are some steps you can take to minimize an estate administration tax in Canada: 

• adding beneficiaries to registered accounts (e.g. RPPs, RRSPs, RRIFs, TFSAs) 
• co-ownership that has a right of survivorship with a beneficiary or another person 
• doing multiple wills for separate personal and commercial properties 
• passing properties and inheritances through gifts early on 
• putting properties into a trust and naming a beneficiary for it 

Estate administration tax: a small price for planning ahead 

Whether you're an executor or a loved one, being proactive about estate administration taxes or probate fees can save you time, stress, and money in the long run. While dealing with taxes during a time of loss might feel like a heavy burden, it doesn’t have to be with the right guidance. As such, when things with taxes get taxing, consulting a personal tax planning and estate lawyer is the next best thing to do. 

Our page of the Largest Law Firms in Toronto is another directory you can use when looking for lawyers and firms to help you with your estate administration tax.