The EAT Audit

As with your income taxes, Estate Administration Tax (EAT) can be subject to a dreaded audit.


For EAT purposes, only assets that are probated (those that fall under the Will in which an estate certificate is obtained) are required to be reported. That means if a testator has two Wills and only one of them needs to be probated, the other does not need to be reported. Although this is the case, the Ministry of Finance required copies of all wills.


During an audit, the Ministry can require documentation for each asset included in the application for probate. If the assets are extensive, this can be quite the undertaking to provide. Even after this documentation is provided, the Ministry may still request further clarification on certain assets.


While an audit may be unavoidable, an Estate Trustee can take steps to ensure the process goes as smooth as possible. When reporting the assets on the Estate Information Return (EIR), the Estate Trustee should do their due diligence when determining what assets must be included for tax purposes. For assets that are difficult to categorize (such as a contingent interest in property) legal advice should be sought. Once the assets to be reported are identified, the Estate Trustee should ensure they are properly valuated. For assets such as real property or commercial interests, this may mean getting several formal opinions as to their value. This is always a delicate balance in that valuations can be costly, but in the event of an audit the Estate Trustee must be able to defend their valuation.


During the administration of the estate, it is a good idea for Estate Trustees to do an interim distribution, and hold back some of the assets in case the estate is audited and found to owe more taxes. Unfortunately, the Ministry can audit the estate for four years from the date when taxes become payable. For a conservative Estate Trustee who wants to minimize liability, this can mean waiting four years until the administration of the estate is complete.


Audits are never fun, and an Estate Trustee must always be mindful they are a real possibility when administering the estate. It is important to do the work on the front-end, seek the advice needed, and take the time to complete EIR forms properly to minimize the stress of the audit process.

Crash Course in Estate Information Returns

As you probably know already, the Provincial Government taxes your assets when you die. This Estate Administration Tax (EAT) (previously called probate fees) are administered under the Estate Administration Tax Act (EATA). The following is a brief explanation of the Estate Information Return (EIR) forms that are required to be filed for EAT purposes:


The form must be filed by an “estate representative.” This includes an executor, administrator, estate trustee (with or without a will), a person entitled to act in the capacity of an executor or administrator, a guardian of a beneficiary of the estate and a guardian for property of a beneficiary.


The EIR form requires the estate representative to outline the deceased’s assets and value at the date of death, which is needed to calculate the amount of EAT payable.


The EIR must be filed for all estates in Ontario and can be submitted by mail, courier, fax or email.


EIRs must be submitted, even if the estate is worth less than $1,000 and there is no tax payable.

The form must be submitted to the Minister of Finance within 90 days of the issuance of the Estate Certificate (such as a Certificate of Appointment of Estate Trustee). If the estate representative discovers that the information is incomplete or inaccurate, they must file an amended form within 30 days of becoming aware that the information is incomplete or inaccurate.

An EIR is not required when the Estate Certificate is involving a Succeeding Estate Trustee or an Estate Trustee During Litigation.


Because the EATA says so. And because an estate representative who fails to file an EIR or who makes a false or misleading statement is liable for a fine of at least $1,000 and up to twice the tax payable by the estate and/or imprisonment of up to two years.


The form requires the representative to report and value each asset owned by the deceased. The value will be the value at the time of death minus the value of any encumbrance on real property.

In order to fill out the form, the representative must first determine whether an asset belonged to the deceased person at the time of his or her death. Certain assets, although owned by the estate, are not counted for the purposes of EAT (such as CPP death benefits, jointly owned assets, and assets with beneficiary designation such as life insurance policies).

More and more, estate representatives are consulting law firms to assist with the administration of estates. If you are a representative, be sure to seek advice in order to make sure you are meeting your duties as a representative.


Garnishment: When a Beneficiary’s Debt Becomes an Issue for an Estate

When a beneficiary of an estate is a “judgment debtor,” meaning the court has ordered a debt payable to a creditor, can the creditor come after the estate for the beneficiary’s money? Like many legal responses, the answer is – it depends.

The legal process whereby a creditor can collect what is owed to them from a debtor by intercepting the debtor’s property/assets from another source is called “garnishment.” There are specific formal procedures surrounding garnishment with respect to notice given by the creditor, the rights and obligations of the “garnishee,” the source where the debtor’s property is being intercepted (i.e. the estate), and specific deadlines which are statute-based, set out in the Rules of Civil Procedure.

A creditor is only able to garnish from a beneficiary’s interest in an estate if the beneficiary’s interest can be considered a “debt” of the estate, that is, that the estate is deemed to owe the debtor, and this determination is based on case law. For example, a Will which sets out that there is to be an outright distribution of money to a beneficiary which has not yet been paid out by the estate, is considered a debt (i.e. presumably a monetary legacy).  On the other hand, it is unclear in the case law as to whether a beneficiary’s “unvested” interest in an estate (i.e. an interest held in a discretionary trust) can be considered a debt payable to the beneficiary and garnishable by the creditor because the trust property would not be in the beneficiary’s hands or control as yet. Also, the case law has different answers depending on the type of estate asset looking to be garnished by a creditor – for example, there are cases where a bank account is garnishable but an RRSP is not.

When an estate trustee is served with a notice of garnishment from a creditor relating to a beneficiary of the estate who is a judgment debtor, the estate trustee should proceed with extreme caution. On the one hand, if the estate trustee releases a beneficiary’s property to a creditor who is not entitled to the property, the estate trustee could be held personally liable by the beneficiary. On the other hand, if the estate trustee does not pay out amounts owing to a rightfully entitled creditor, then the estate trustee could be held personally liable by the creditor. Estate trustees put in such situations should seek legal advice as to what his or her obligations are.

By: Karen A. Forhan