What is estate administration tax (formerly known as probate)?

When you die, your will gives legal authority to deal with your estate to your estate trustee(s) (or executor). Although your estate trustee is legally entitled to do so, when the time comes to redeem or transfer certain assets registered in your name (such as investments with financial institutions, publicly traded shares and, in some instances, real estate) probate is usually required. Probate serves as proof to financial institutions, financial advisors and the land registry office that your will has been certified by the court and that your executor is authorized to represent your estate. This process of obtaining court certification is known as probate.

The estate administration tax is calculated on the total value of the deceased's estate wherever situated, that is sworn/affirmed to on the application for a certificate of appointment of estate trustee under "Value of Assets of Estate". The formula for calculating the amount of the tax is set out in the Estate Administration Tax Act, 1998 as follows:

• • $5 for each $1,000, or part thereof, of the first $50,000 of the value of the estate, and
  • $15 for each $1,000, or part thereof, of the value of the estate exceeding $50,000.

The following chart lists the estate administration tax payable for estates valued between $1,000 and $5 million. 

Estate administration tax is usually calculated on the value of the gross estate. This means that debts (with the exception of mortgages or other claims against real estate) are not deducted when calculating the estate value. This calculation rule can have a big impact on estate assets if there are more debts than assets. For example, if your estate has a gross value of $700,000 and debt of $400,000, and $100,000 of the debt consists of a mortgage, estate administration tax would be calculated on $600,000, and not on the $300,000 in assets. If probate is required for any part of your estate, the entire estate value must be used to calculate the cost of probating the will, even if some of the estate assets do not require probate to effect a change of ownership (for example, Canada Savings Bonds worth less than $20,000, or shares in a private company).

What property is included when calculating probate tax?

The cost of probate generally is based on the fair market value of all property that you own at the time of your death.

Some assets are excluded from valuation for probate purposes. These include:

• • • Assets registered in joint names and which, on the death of the first person, automatically pass to the survivor(s) by right of survivorship
    • Real estate you own that is located outside the province of residence
    • Life insurance and, in most provinces, RRSP/RRIF holdings for which you      have named a beneficiary (other than your estate)
    • Assets held in Trust