Unpaid Loans on Death Can Lead To Higher Estate Administration Tax

  • 30 mars 2019
  • Birute Luksenaite

The world’s total debt has now reached US$240 trillion and Canada’s total household debt has hit more than 178% of household disposable income. Canadians are estimated to owe approximately C$1.5 trillion in mortgage debt and C$500 billion in non-mortgage debt, the latter including credit card debt, vehicle financing debt, and other personal debt for which no security in the form of real estate is provided. For those Canadians in jurisdictions that impose an estate administration tax (the “EAT”, commonly known as “probate tax”), high levels of non-mortgage debt can have significant implications for their estates. Some loan receivables held by an estate may also have similar implications.

Generally in Canada, the EAT is imposed by most provincial and territorial jurisdictions at specific rates and applied to the value of an estate at the date of the individual’s death. The EAT is generally paid to the Ministry of Finance of the applicable jurisdiction as a deposit at the time an application is made to the court to obtain a certificate of an estate trustee (“Certificate”). The purpose of the Certificate is the court’s confirmation of appointment of an estate trustee and to help assure that the trustee will carry out the trustee’s obligations to the estate, its beneficiaries, and creditors of the deceased.

In Ontario, for example, the EAT is payable at the rate of approximately 1.5%.[1] The calculation of the value of the estate is a subject of frequent discussion: what is to be included in the value of the estate and is it gross value or net value?