Estate Administration Tax — It Is Here!

In Issue 11-04 and Issue 14-04 of our newsletter, I discussed Schedule 14 to Bill 173 which proposed an amendment to the Estate Administration Tax Act, 1998 (the "EATA"). As predicted, the regulation to the EATA which was released on November 7, 2014, came into force January 1, 2015. The question that we are now asking is: What happens next?

As a result of the amendments to the EATA, we now know that within ninety (90) calendar days of receiving a Certificate of Appointment (providing your application for the Certificate was filed after January 1, 2015), the Minister of Finance must receive (Note: It must be received by the Minister and cannot simply be sent by the estate representative within that timeframe) the Estate Information Return. In the May 2011 newsletter, we noted that the legislators incorporated by reference the collection and assessment provisions of the Retail Sales Tax Act ("RST") to govern the procedures for the collection of Estate Administration Tax ("EAT"). To that end, the EATA now provides that when applying the relevant sections of the RST, tax payable by a "purchaser" under the RST is tax payable by an estate under the EATA. An amount to be remitted by a "vendor" under the RST is an amount payable by an estate representative under the EATA, and all references to a "person" in the RST are to be read as including an estate.

Now that the collection of EAT is governed by the Minister of Finance pursuant to section 4.1 of the EATA, the Minister of Finance may assess an estate in respect of its tax payable under the EATA. The assessment procedures to be used by the Minister of Finance in assessing this tax are those provisions set out in subsections 18(4) to (9) of the RST. This assessment may occur within four (4) years after the date the tax became payable. There is an important exception, in that the Minister may at any time that he or she considers it reasonable, assess or re-assess an estate's tax payable if the Minister establishes that any person failed to comply with section 4.1 of the EATA, being the duty and timing of giving of information, or that any person made a misrepresentation that is attributable to neglect, carelessness or wilful default, or has committed any fraud in supplying any information regarding the estate or omitting to disclose any information regarding the estate.

If you are unable to determine the complete value of the estate but require a Certificate of Appointment, you are still able to file your application with a signed undertaking that the applicant will, within six (6) months of the date of the undertaking, file a sworn statement with the Court of the actual total value of the estate and pay any additional tax payable if the actual value is higher than the estimated value. As a result of the new regulation, this will mean that you must file two Estate Information Returns: The first one within ninety (90) days of receipt of your Certificate of Appointment; and a second "amended" Estate Information Return within thirty (30) calendar days of filing your sworn statement with the Court of the actual value of the estate, together with payment of additional tax owing. (Note: Even if you filed your application before January 15, 2015, the moment you advise the Court of amended values, you then become obliged to file an Estate Information Return.) The four-year assessment period will run from the date of the last filing. We also note section 4.9 of the EATA which provides that the estate representative shall keep at their residence or place of business records and books of account in the form and containing the information that will enable the accurate determination of the tax payable under the EATA. If an estate trustee fails to comply with section 4.1, the penalties are a fine equal to:

• (a) an amount that is at least $1,000.00 but does not exceed twice the amount of tax payable by the estate if that amount is greater than $1,000.00;
• (b) imprisonment for a term of not more than two years; or
• (c) both (a) and (b).

What does this mean for practitioners? Since January 1, 2015, I have met with three new estate trustees to gather information for the preparation of the Application for a Certificate of Appointment. Using the requirements for the new Estate Information Return, I began, for the first time, to collect the additional information that we are going to require. Much of it they did not have at hand and were going to have to make inquiries (such as vehicle information numbers and assessment roll numbers of properties). The hardest part, of course, is valuing the personal items. Two of our three clients were not pleased at the thought of having to retain a firm to do a walk-through of the deceased person's residence to prepare a valuation of their personal items, especially since, in their view, the value of the deceased's 1970's furniture would probably be less than the cost of the valuation. It is also not known if the Minister of Finance will accept letters of opinion as their website refers to appraisals for real estate property.

So I can say that I have received some push back. One potential estate trustee was very annoyed and felt that it was very invasive and disrespectful of the deceased person.

When explaining to the client the possible assessment of their Estate Information Return within four (4) years, their immediate reaction has been: Does that mean this Estate must carry on for four more years? We have usually just completed the discussion about the timing of receiving a clearance certificate, and they are appalled to think that this might go on for an even longer period of time. The only comfort that the Minister of Finance has given is to state, "they are committed to providing a form of comfort letter, upon request, to estate representatives who have received a clearance certificate" from the CRA. The procedure for requesting such a comfort letter and the contents of it are not yet known.

Again, it will only be a comfort letter and, therefore, could not be fully relied upon.

The next question asked by the client is: What will be the additional cost to prepare this Estate Information Return? Again, more information and detail is required which will take additional time to obtain. Other questions include: Is this legal work that lawyers or accountants should be completing or is this work to be done by the estate trustees? Is this compensable work for an estate trustee? And, given the penalty for errors in the Estate Administration Return, should the clients be relying on lawyers to complete this?

There are limited exceptions to the requirement to file. No Estate Information Return is required to be filed if the Certificate you seek is one of the following:

• 1. Certificate of Appointment of Succeeding Estate Trustee with a Will;
• 2. Certificate of Appointment of Succeeding Estate Trustee with a Will Limited to the Assets Referred to in the Will;
• 3. Certificate of Appointment of Succeeding Estate Trustee without a Will; and
• 4. Certificate of Appointment of Estate Trustee during Litigation.

We are still in early days, and as I am not aware of anyone who has yet had to complete such a return, we will see in the upcoming months what this new regulation will mean in practice.