Anonymised, illustrative composite. The private-company shares were put into a second will that was never submitted for a certificate, and the estate paid Ontario nothing on the largest asset it owned. The technique works on the disclosure rule, not on the valuation.
At a glance
The founder of a 44-employee precision machining business in southwestern Ontario died at 71. His estate held the shares of the operating company, a $180,000 shareholder loan owed to him by that company, a house, two investment accounts and a vehicle.
His will was a single, ordinary document naming his widow and his accountant as estate trustees, drafted eleven years earlier — before the company’s value moved from the low seven figures to something a strategic buyer wanted.
Ontario’s estate administration tax is charged on the value the estate representative has to disclose when applying for a certificate. On a single will that covers everything the deceased owned — and the largest thing this deceased owned was shares in a private company nobody outside the family would ever ask to see a certificate for.
That is the whole inefficiency. A bank will not release an account without a certificate. A land registrar will not transfer title without one. But a private corporation whose directors are the estate trustees themselves, whose articles restrict transfer and whose transfer agent is its own corporate lawyer, has no third party demanding proof of appointment. The estate was about to pay a tax whose trigger — the certificate — the shares did not need.
Under a single will the disclosed value would have been $8,900,000. The rate is $15 for each $1,000, or part of $1,000, by which the value of the estate exceeds $50,000: ($8,900,000 − $50,000) ÷ $1,000 = 8,850 units, at $15 each, is $132,750.
Under two wills, the secondary will governed the operating-company shares at $7,400,000 and the $180,000 shareholder loan, leaving $1,320,000 to be dealt with by the primary will. ($1,320,000 − $50,000) ÷ $1,000 = 1,270 units, at $15, is $19,050. The saving is $113,700 against a drafting cost that was quoted at $9,500 including the corporate work.
Two figures did not change, and it matters that they did not. The shares were valued the same way in both scenarios — the technique does not touch valuation, and undervaluing a private company on an estate information return is a separate and worse problem. And the deemed disposition on death under the Income Tax Act is unaffected: the capital gain is realised either way. This is a probate-tax technique, not a tax-deferral one.
Start with the charging provision. Section 2(1) of Ontario’s Estate Administration Tax Act, 1998 makes the tax “payable to the Crown in right of Ontario by the estate of a deceased person immediately upon the issuance of an estate certificate”. Section 2(6.1) sets the current rate for applications made on or after 1 January 2020 at “$15 for each $1,000 or part thereof by which the value of the estate exceeds $50,000”, and s.2(2)(b) exempts an estate whose value does not exceed $50,000.
The tax is therefore triggered by a certificate and measured by a defined value. Section 1(1) defines “value of the estate” as “the value which is required to be disclosed under section 32 of the Estates Act” of all the property that belonged to the deceased at death, less the actual value of any encumbrance on real property.
So the operative section is not in the taxing statute at all. Section 32(1) of the Estates Act requires an applicant to deliver a true statement of the total value of all the property that belonged to the deceased. Section 32(3) then supplies the exception the technique runs on: “Where the application or grant is limited to part only of the property of the deceased, it is sufficient to set forth in the statement of value only the property and value thereof intended to be affected by such application or grant.”
Note carefully what unit each provision governs. Section 2(1) taxes an estate certificate, not an estate. Section 32(3) limits a statement of value to the property affected by the grant applied for. Neither says that assets outside a certificate escape tax as a matter of general principle — they say that a limited grant discloses only what it covers, and that the tax base is that disclosure. If the secondary-will assets ever need a certificate of their own, the tax follows them.
The compliance obligations attach to the certificate too. Section 4.1 of the taxing Act requires the estate representative to give the Minister prescribed information, and O. Reg. 310/14 s.3(1) fixes the deadline: the return must be delivered “no later than 180 days after an estate certificate is issued to the estate representative”. Sections 4.2 and 4.4 give the Minister power to assess and reassess.
The estate trustees applied for a certificate limited to the primary-will property, disclosed $1,320,000, paid $19,050 and filed the estate information return inside the 180 days. The directors — the same two people, acting under the secondary will — registered the share transfer on the strength of that will and a directors’ resolution. No third party asked for a certificate at any point, which is the assumption the structure rests on.
Two years later the shares were sold to a strategic buyer. The buyer’s counsel reviewed the chain of title to the shares as part of registering share transfers and updating records and accepted it, because the minute book showed a clean resolution and the secondary will was properly executed and unrevoked.
Outside Ontario the exercise mostly does not pay for itself. Alberta charges a court fee rather than an ad valorem tax: Schedule 2 to the Surrogate Rules, Alta. Reg. 130/1995 sets the fee for an application for a grant by reference to a band “where the net value of property in Alberta is” the stated amount, topping out at $525 for an estate over $250,000. On an $8.9 million Alberta estate the entire multiple-wills apparatus would save a few hundred dollars against a five-figure drafting bill. The technique is worth doing where the tax is proportional to value and worth skipping where it is not.
The failure modes inside Ontario cost more than the saving. Two wills drafted by different hands, where the later one contains an ordinary revocation clause, revokes the first — and an estate that has to litigate which will governs the shares has spent the $113,700 several times over. A secondary will covering an asset that turns out to need a certificate after all (a registered security, a foreign account, a share the transfer agent will not move without proof) leaves the estate applying for a second grant and paying the tax it had planned around.
The tell is on the balance sheet of the estate rather than in the will: what proportion of the estate is made up of assets that no institution will ever demand a certificate for? Private-company shares, shareholder loans, personal effects and interests in a family partnership are the usual candidates. Where that proportion is above about half, a single will is quietly overpaying.
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