One of the most common misconceptions in Ontario estate administration is whether a mortgage can be deducted when calculating probate fees ,officially known as the Estate Administration Tax (“EAT”), but commonly referred to as “probate fees”
Many people assume probate is calculated on the full value of a property regardless of debt. In fact, Ontario currently allows certain deductions for registered encumbrances on real estate.
The Rule
The Ontario Ministry of Finance states that Ontario real estate is included in the estate value at:
- “the value of the real estate, less encumbrances such as mortgages, collateral mortgages or liens.”
This means that registered mortgages against the property may generally be deducted when calculating Estate Administration Tax.
Example
Assume:
- House value: $1,000,000
- Registered mortgage: $500,000
Scenario 1 — If No Deduction Were Allowed
Probate would be calculated on the full $1,000,000 value.
Ontario probate tax rates are currently:
- No tax on the first $50,000
- 1.5% on the balance
Calculation:
- $1,000,000 − $50,000 = $950,000
- $950,000 × 1.5%
- Probate fee = approximately $14,250
Scenario 2 — Deducting the Mortgage
If the registered mortgage is deducted:
- $1,000,000 − $500,000 mortgage
- Net estate value = $500,000
Calculation:
- $500,000 − $50,000 = $450,000
- $450,000 × 1.5%
- Probate fee = approximately $6,750
Difference:
- Approximate savings = $7,500
Important Limitation
Not all debts are deductible.
Generally, Ontario permits deductions for registered encumbrances tied directly to the land, including:
- Mortgages
- Collateral mortgages
- Registered liens
However, unsecured debts are generally not deductible, including:
- Credit cards
- Personal loans
- Unsecured lines of credit
- Funeral expenses
- Legal fees
Another Important Consideration
If the property is jointly owned with right of survivorship, the property may pass outside the estate entirely and probate may not apply to that asset at all.
Estate planning involving jointly held property, beneficiary designations, trusts, and multiple wills can significantly affect probate exposure.
As always, careful legal and tax advice should be obtained before making estate planning decisions.
Brian Madigan LL.B., Broker
www.OntarioRealEstateSource.com