May 25, 2023 | Danny McMullen and Luke Giffen
Legal Bites – Estates Taxes
If you’re planning on settling an estate, what taxes should you expect to pay?
When planning your estate, it is imperative to make sure that your affairs are handled in the most efficient way possible. A question we get asked frequently at Northview Law when helping clients with their wills is “What kind of taxes are applicable to my estate after my death?”
While in Ontario, individuals who inherit from an estate do not have to pay taxes on the money they have inherited. However, there are certain taxes that must be paid, so let’s get into it.
- Estate Administration Tax (Probate Tax)
The Estate Administration Tax, also referred to as the probate fees, is applied to the value of the assets of an estate which form the estate of the deceased. This tax is applicable only if probate was necessary. Useful to know is that probate is now referred to as a Certificate of Appointment of Estate Trustee. This does not include any assets which pass outside of the estate such as a jointly owned home which passes to the spouse or savings accounts which have assigned beneficiaries. This tax is charged at the time the estate certificate is applied for.
After January 1, 2020, if applying for an estate certificate, you do not need to pay Estate Administration Tax on an estate which is valued at $50,000 or less. If the estate is valued at more than $50,000, the Tax will be calculated as $15 for every $1,000 of the value of the estate.
A useful calculator for an estimate of your Estate Administration Tax can be found here.
- Income Tax
The estate of a deceased person is subject to pay income tax on the income received by the estate or the deceased within their last year of life. The executor of the estate is liable for paying this tax before an estate can be administered. In addition, the executor is responsible for the filing of the deceased’s tax return for the year of death and any subsequent years until the estate is distributed.
- Capital Gains Tax
The Capital Gains Tax is applied when selling or disposing of an asset which has increased in value. When assets of an estate are being sold or disposed of, they are sold at the fair market value at the time of death. If the asset has increased in value since it was obtained, then the increase in value is what is being taxed through the Tax. However, some assets are not subjected to this tax for example the sale of a principal residence. For a complete picture on what might be subject to a capital gains tax, please reach out and we’ll be happy to help.
Reduction of Taxes
There are ways in which you can try to reduce the taxes which are applicable to your estate after your passing. One such is example is by making a joint account for a beneficiary or adding a beneficiary to the title of your home. Understandably, the options available to you are specific to your certain circumstance. Therefore, if you have any specific will or estates questions, our team is here to help you.
Please schedule a consultation to see how we can best assist you to plan for your future!
—Thank you to Ema Marcheska for her help with the drafting of this blog! —