This chapter is from International Succession Laws (Bloomsbury Professional), which is an important service for trust practitioners, lawyers, accountants and banks. It deals with the practical aspects of fixed rights of inheritance; recognition of trusts; treatment of lifetime gifts; recognition of foreign wills; and recognition of foreign taxes. The looseleaf is written by leading practitioners from around the world and more countries are added as it is regularly updated. It provides a source of information for anyone encountering deals or situations featuring foreign succession laws. Each country's entry contains information on their particular fixed rights of inheritance, formalities and tax issues, as well as issues and matters of succession law pertaining to that particular country.
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Table of Contents
Margaret R O'Sullivan
C2.1 In order to understand the laws of succession in the Canadian context, it must first be borne in mind that Canada is a federal state. Under the Canadian Constitution, matters involving succession to property on death fall under provincial and territorial jurisdiction, as opposed to federal jurisdiction. Accordingly, it is necessary to treat each of the ten provinces and three territories as a separate jurisdiction or state, each with its own succession laws.
As discussed below, most common law jurisdictions have traditionally resolved conflict issues involving succession to property on the basis of the law of the deceased's domicile and the law of the situs of the deceased's assets. It is the province or territory of domicile of the deceased and the province or territory in which assets are located which are relevant for resolving such issues, as opposed to looking to Canada as a whole. There is no Canadian domicile or situs as such.
It must also be borne in mind that two basic legal systems co-exist within Canada: the common law in all the provinces and territories except for the province of Quebec which has a civil law system.
C2.2 As discussed below, the general common law principle of testamentary freedom, with certain limited exceptions, applies in all jurisdictions in Canada. Unless a statute or contract provides otherwise, a testator is free to dispose of his or her assets whichever way he or she desires. In the absence of a statutory or contractual obligation, the deceased's spouse, ascendants or descendants have no entitlement to any share in, or any part of, the deceased's estate. In the absence of a valid will, provincial laws of intestacy govern succession to property.
C2.3 The general rule is that intestate succession to the deceased's movables, wherever situate, is governed by the law of the place where the deceased died domiciled.
C2.4 Succession to a deceased's immovables is governed by the law of the place where the immovables are situate.
C2.5 In general, immovables comprise land and interests in land, such as a lease or a life estate. Movables comprise the rest of a deceased's estate, including, in most instances, his or her intangible assets. The law of the place where particular property is located determines whether such property is immovable or movable.
By way of example, consider a person who dies intestate domiciled in Belgium, but has jewellery and other valuables in safe keeping in the province of British Columbia, and owns land there as well. Applying the above rules, the courts of British Columbia would refer to the law of Belgium in dealing with succession to the jewellery and valuables stored in British Columbia, as these are movables to be governed by the domicile of the intestate. With respect to the land located in British Columbia, however, the laws of British Columbia are determinative, as land is clearly an immovable, and therefore succession to the land will be governed by the intestacy rules of British Columbia.
C2.6 Each province has legislation that provides for devolution of property on death if a deceased dies intestate. Such legislation fixes entitlement to the deceased's property among the deceased's family members according to fixed percentages, which vary from province to province. Many provinces have a 'preferential' share, which provides for a certain value of the deceased's estate to first pass to his or her surviving spouse, and for the remainder to pass among family members. The surviving spouse will be entitled to receive the 'preferential share' and a portion of the remainder on an intestacy. In certain provinces (for example, Ontario), a surviving spouse has intestate rights as long as a marriage was in existence at the date of death. In other provinces (for example, British Columbia, Saskatchewan, Manitoba, Nova Scotia, Quebec in relation to 'civil union spouses' and Alberta in relation to 'adult interdependent partners') and territories (for example, Northwest Territories, Nunavut and Yukon), legislation has also conferred intestate rights on common law spouses. On 20 July 2005, federal legislation giving same sex couples the right to marry received Royal Assent and became law nationwide. On 7 December 2006, a motion tabled by the ruling Conservative government to re-open the same sex marriage debate was defeated in the House of Commons. Because of the evolving status of common law spouses across Canada, it is important to confirm with a lawyer in the jurisdiction the applicable law in relation to intestacy rights especially regarding the definition of a 'spouse'. The preferential share varies among the provinces from a low of $50,000 in the province of Nova Scotia and the territories of Nunavut and the Northwest Territories to a high of $200,000 in the province of Ontario. The following chart summarises intestate rights in each of the provinces:
Spouse Only |
Children Only |
Spouse + One Child |
Spouse and Children |
|
Alberta |
All to spouse |
All children share equally |
Either all to spouse, or greater of $150,000 or half of estate to spouse, the rest equally to children |
|
British Columbia |
All to spouse |
All children share equally |
First $65,000 to spouse, rest split equally |
First $65,000 to spouse 1/3 of the rest to spouse 2/3 of the rest to children |
Manitoba |
All to spouse |
All children share equally |
Either all to spouse, or greater of $50,000 or half of estate to spouse, the rest equally to children |
|
New Brunswick |
All to spouse |
All children share equally |
'Marital property' (as defined by statute) to spouse, rest split equally |
'Marital property' to spouse 1/3 of the rest to spouse 2/3 of the rest to children |
Newfoundland and Labrador |
All to spouse |
All children share equally |
Split equally |
1/3 to spouse 2/3 to children |
Northwest Territories and Nunavut |
All to spouse |
All children share equally |
First $50,000 to spouse, rest split equally |
First $50,000 to spouse 1/3 of the rest to spouse 2/3 of the rest to children |
Nova Scotia |
All to spouse |
All children share equally |
First $50,000 to spouse, rest split equally |
First $50,000 to spouse 1/3 of the rest to spouse 2/3 of the rest to children |
Ontario |
All to spouse |
All children share equally |
First $200,000 to spouse, rest split equally |
First $200,000 to spouse 1/3 of the rest to spouse 2/3 of the rest to children |
Prince Edward Island |
All to spouse |
All children share equally |
Split equally |
1/3 to spouse 2/3 to children |
Quebec |
All to spouse (but if certain relatives survive, spouse may not receive entire estate) |
All children share equally |
1/3 to spouse 2/3 to child |
1/3 to spouse 2/3 to children |
Saskatchewan |
All to spouse |
All children share equally |
First $100,000 to spouse, rest split equally |
First $100,000 to spouse 1/3 of the rest to spouse 2/3 of the rest to children |
Yukon |
All to spouse |
All children share equally |
First $75,000 to spouse, rest split equally |
First $75,000 to spouse 1/3 of the rest to spouse 2/3 of the rest to children |
This chart was adapted and reprinted with permission from Trust and Estate Management, Chapter 2, 'Trust and Estate Administration' developed by Margaret R O'Sullivan, Institute of Canadian Bankers, 2001.
Note: British Columbia has enacted new legislation, the Wills, Estates Succession Act, 2009, not yet in force. Under the new legislation, a surviving spouse is entitled to the household furnishings, and a preferential share of the estate (either $300,000 if all children are children of the surviving spouse, or $150,000 if not), and the remaining estate is split 1/2 to the spouse and 1/2 equally among the children.
C2.8 The law of each province provides certain dependants of the deceased with the right to make a claim against the estate of the deceased for support, if the deceased has not made adequate provision for the dependant. These claims may be regarded as a statutory limitation on testamentary freedom.
To qualify as a dependant, the deceased generally must have either been providing support to the person, or have been under a legal obligation to provide support, and the person must fit within a circumscribed group of family members of the deceased. Common law spouses, including those of the same sex in certain provinces, may claim against the estate of the deceased for support. As noted in C2.6 above, because of the evolving status of common law spouses, including same sex spouses, across Canada, it is important to confirm with a lawyer in the jurisdiction the applicable law in relation to dependants' rights. This legislation is primarily in the nature of a right to support and is subject to the exercise of judicial discretion with regard to quantum, although some provinces extend the basis for relief to include a situation where the testator has breached a 'moral obligation' to the person claiming relief. In certain cases, adult children of a deceased have been able to assert a successful claim on this basis, although they had no financial need. In general, whether or not such legislation applies in a particular case depends on the law of the domicile in respect of the deceased's movables, and on the law of the situs in respect of the deceased's immovables.
C2.9 Spousal rights to share in the estate of a deceased or to make a claim against the property of the deceased can also arise as a result of a province's matrimonial property regime. Most of the provinces and territories, with the exception of British Columbia, Prince Edward Island and Yukon, create property rights on death for a surviving spouse arising out of marriage. As noted in C2.6 above, legislation was passed providing the right for same sex couples to marry, such that property rights arising on death are now applicable in the context of same sex marriages in those jurisdictions which provide for the rights of a surviving married spouse. Spousal rights on death also act as a limitation to testamentary freedom.
As an example, in Ontario under the Family Law Act, a 'deferred' community of property regime exists. Although during the marriage each spouse remains separate as to property and is free, with few exceptions, to deal with his or her property as he or she sees fit, on either marriage breakdown or death of the first spouse, the other spouse has a claim for equalisation of property. In general terms, this claim is equal to one-half of the value of property which has accrued during the course of the marriage, with several exclusions including gifts and inheritances. Such a right is not a property right, or interest, in the deceased spouse's estate, but instead is considered in the nature of a creditor's right against the deceased spouse's estate. If a spouse chooses to make a claim for equalisation, he or she forfeits his or her rights under the will, as well as benefits under plans of the deceased and under any life insurance policies.
C2.10 Succession to a testate person's estate is governed by the terms of his or her will. The issues that often arise in testate succession matters relate to the will itself, including:
(a) whether the testator had capacity to make the will;
(b) whether a particular beneficiary has capacity to receive under the will;
(c) whether the formalities of making the will were observed;
(d) whether the will is intrinsically or essentially valid; and
(e) matters relating to construction of the will.
C2.11 In regard to the common law provinces, the following is a summary of general conflict of law principles in respect of the above matters.
C2.12 The capacity of a testator to make a will of movables is determined by the law of his or her domicile. The testator's capacity to make a will of immovables is governed by the lex situs.
C2.13 The capacity of a beneficiary to receive a movable is determined by the law of the place where the deceased died domiciled or the law of the beneficiary's place of domicile. It appears that in the case of immovables, the capacity to receive a devise is governed by the situs of the immovable.
C2.14 The formal validity of a will concerns such issues as whether the will was in writing as required by law, and whether the will was properly witnessed. Under general conflict of laws principles, the formal validity of a will, in so far as it relates to an interest in immovables, is governed by the situs of the immovable. In respect of movables, the will's formal validity is governed by the testator's domicile at the time of his or her death.
Several Canadian provinces have statutory provisions governing recognition of the validity of a will. For example, the relevant provisions of the Ontario Succession Law Reform Act provide that a will is valid and is admissible to probate in Ontario if, at the time it was made, it complied with either the internal law of the place:
(i) where the will was made,
(ii) where the testator was then domiciled,
(iii) where the testator then had his or her habitual residence, or
(iv) where the testator was then a national,
if there was in that place one body of law governing the wills of nationals.
This legislation also specifically provides that a change in the domicile of the testator, after the will is made, does not render the will invalid as regards the manner and formalities of its making.
With regard to the issue of formal validity, it should be noted that most Canadian provinces, namely Alberta, Saskatchewan, Manitoba, Ontario, Prince Edward Island, Newfoundland and Labrador, New Brunswick and Nova Scotia, have adopted the Convention Providing a Uniform Law on the Form of an International Will. The effect of this Convention is to hold a will valid if it is made in compliance with the terms of the Convention, regardless of the place where it was made, the location of the assets, and the nationality, domicile or residence of the testator. Given the few jurisdictions in the world that have become parties to this Convention, often termed the Uniform Wills Convention, in Canadian professional practice it is seldom resorted to because of its limited application.
C2.15 Essential or intrinsic validity usually refers to such matters as the testamentary capacity of the testator, whether the will complies with rules against perpetuities and accumulations, validity of the exercise of powers of appointment, validity of a gift to an attesting witness or a charity and whether the will was free and voluntary and not subject to fraud, mistake or undue influence sufficient to make it invalid.
The general position is that the validity of a will, in so far as it relates to an interest in land, is governed by the situs of the real property, and with respect to movables, is governed by the domicile of the testator at his or her date of death.
C2.16 The general position is that the law intended by the testator governs construction of a will. A rebuttable presumption arises that the testator intended the applicable law to be of his or her domicile at the time he or she executed the will. In respect of immovables, if the interest that would arise from such construction would not be allowed or be recognised by the law of the situs of the immovable, then the law of the situs will prevail.
C2.17 Although there is little law on the issue, with regard to the choice of law applicable to revocation of a will, it appears that with regard to movables, the law of the testator's domicile will govern such issues, and with regard to immovables, the law of the situs of the immovable will govern.
In Ontario, for example, a will is revoked by execution of a subsequent will if it includes a revocation statement (if no such statement is made, the subsequent will revokes the previous will only to the extent of any inconsistencies between the two wills), by a subsequent marriage (unless the will is made in contemplation of the marriage and the intention is demonstrated that it should survive the marriage or if the surviving spouse elects to receive the benefits provided under the will) and by burning, tearing or otherwise destroying the will. Divorce subsequent to execution of the will invalidates only those provisions of the will relating to the testator's former spouse (not the entire will), except where a contrary intention appears in the will. Revocation of a will by a subsequent marriage has been classified as a rule of matrimonial law rather than a matter of succession. Case law supports the view that whether or not a subsequent marriage revokes a will depends upon the law of the place where the testator was domiciled at the time of the marriage.
C2.18 For beneficiaries making dependant's claims or otherwise seeking relief against an estate, determining the testator's domicile for the purposes of determining which law will govern such issues will be of vital importance. If the testator has changed his or her domicile during his or her lifetime, it will be a question of fact as to where the testator was domiciled at the time of his or her death.
In Foote v Foote Estate, 2011 ABCA 1 (Alta CA), leave to appeal to the Supreme Court of Canada dismissed with costs (2011 CanLII 40928), the testator was born and lived the first 43 years of his life in Alberta, and it was undisputed that Alberta was his domicile of origin. He then moved to Norfolk Island and spent many years there, and it was again undisputed that Norfolk Island was his domicile of choice. On his death, a dispute arose as to whether he had either changed his domicile of choice prior to his death or abandoned his domicile of choice with the consequence that his domicile reverted to his domicile of origin at the time of his death. The Alberta Court of Appeal confirmed that the acquisition of a domicile of choice involves two factors, the acquisition of residence in fact in a new place and the intention of permanently settling in that place. The Court noted that the choice must be voluntary, not dictated by business, debts or health. Regarding the abandonment of a domicile, the Court noted that the test is similar to that for acquisition of a domicile of choice, requiring an intention to cease to reside in a place coupled with acts that end the person's residency there. Based upon the facts in this case, most notably that the testator had only taken preliminary steps to leave Norfolk Island and return to Canada and that he was contemplating this move for medical reasons, the Court found that the testator had not acquired a new domicile of choice nor had he abandoned his domicile of choice. The Court did confirm that it was not necessary for the testator to have completely ceased residence in Norfolk Island to have abandoned it as his domicile, but noted that his residency in Canada was brief and that Norfolk Island continued to be his permanent home until his death.
C2.19 In each common law province, the distinction between domicile and situs is relevant in determining the applicable law that governs any trusts created under the will of a testator.
It is important to distinguish between the validity of the will creating any trusts, and the validity of the trusts established under the will.
C2.20 The general rule is that the validity of the will is governed by the law of the testator's domicile as at his or her date of death. The formal validity of the trust provisions contained under the will depends on the law which governs validity of the will. If the will fails, so will the trust provisions it contemplates. However, issues concerning the essential validity of the trust provisions under a will are considered severable.
The general position appears to be that the essential validity of a testamentary trust of movables will be governed by the law chosen by the testator unless there are strong public policy considerations to the contrary. In the absence of an express or implied choice of law, however, the general rule is that the testator's domicile as at the date of his or her death will determine validity.
C2.21 The construction of a testamentary trust of movables is governed by the law expressly or impliedly designated by the testator, and failing a designation, by the law of the testator's domicile at the time of the making of the will.
C2.22 Case law has not determined conclusively which law governs administration of a testamentary trust of movables. It is generally considered to be the place of administration, but in certain cases the law of the testator's domicile at the time of his or her death may govern.
In Keleman v Alberta (Public Trustee) (subnom Re Jagos (Estate of)) 2007 CarswellAlta 117, 2007 ABQB 56, [2007] 4 WWR 562, 71 Alta L R (4th) 366 (QB), the court considered whether Alberta or Romanian law should apply in relation to a guardian's application for the immediate release of funds to a beneficiary aged 16. The will provided that the funds be held in trust for the beneficiary until she reached the 'age of majority'. The issue arose of which jurisdiction's age of majority should apply. The court characterised the issue as involving the administration of a trust. The court referred to the provincial International Convention Implementation Act pursuant to which the 1985 Hague Convention on the Law Applicable to Trusts and on Their Recognition is applicable in Alberta to determine the conflict of laws principles to determine the applicable law. Using the factors set out in the Convention, the court determined the law of closest connection should apply, and that the trust was most closely connected with Alberta. Accordingly, the court held that the phrase 'age of majority' should be interpreted according to Alberta law.
In Webster-Tweel v Royal Trust Corp of Canada (2010) 185 ACWS (3d) 1098, 2010 ABQB 139 (Alta QB), the court considered whether Alberta or Quebec law should apply in relation to a beneficiary's application for a complete accounting for the entire period of the administration of several trusts. The applicant beneficiary was requesting a complete accounting for two related trusts of which she was a contingent beneficiary (further accounting regarding a related trust of which she was a vested beneficiary was also requested, however the trust deed in that trust had selected Quebec law to govern, and therefore the forum issue only arose regarding the other two trusts). The corporate trustee claimed that the law of Quebec governed such a request, even though the assets of the trust had been moved in 1978, several years after the establishment of the trusts, to the corporate trustee's Alberta office. Based upon uncontroverted expert evidence, if Quebec law applied, the beneficiary was not entitled to any more information than she had already received for any of the trusts. The court characterised the issue of a beneficiary's right to an accounting as most closely involving the administration of a trust. In this case, as in Keleman above, the court found that the law of the jurisdiction with the closest connection to a trust should govern the administration of the trust, but in this case the court went on to find that this law also extended to determinations of whether the law governing the administration of the trust had been validly changed during the course of the trust administration. The court determined (uncontroversially) that at the inception of the trusts of which the applicant beneficiary was a contingent beneficiary, Quebec had been the jurisdiction most closely associated with the trusts, and therefore Quebec law governed whether the law governing the trusts' administration had been validly changed. Quebec law states that the law applicable to a trust's administration is immutable unless a court order changing such law is obtained, or, prior to 1994, a private member's bill had been passed by the Quebec legislature changing such law, and since neither exception applied in this case, the court held that Quebec law governed the applicant beneficiary's entitlement regarding an accounting for the trusts, despite the 1978 change of jurisdiction of the assets.
C2.23 With regard to a testamentary trust of immovables, the law of the situs is generally the controlling factor and will govern issues involving both validity and administration, with certain possible exceptions where a trust is comprised of both movables and immovables. The law of the situs will also apply with respect to issues of construction, failing an express or implied choice of law by the testator, with possible exceptions where the domicile of the testator at the time of the making of the will may be considered determinative.
C2.24 The Hague Convention on the Law Applicable to Trusts and on Their Recognition adopted in 1984 by the Hague Conference on Private International Law has been ratified by Canada, and, at the time of writing, is in force in the provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Prince Edward Island, New Brunswick, Newfoundland and Labrador, and Nova Scotia. Each of these provinces has legislation in place adopting the Convention. One significant achievement of the Convention is that it provides greater certainty in that the settlor or testator may select the law to govern a trust without the need for a substantial relationship with the chosen jurisdiction.
In Ontario, which has not adopted the Convention, traditional conflicts of laws principles continue to govern recognition of a foreign trust. Under the Civil Code of Quebec, a comprehensive set of conflict laws is provided, including those with regard to trusts. Of note in this regard is the discretionary doctrine available under the Civil Code of Quebec of forum of necessity, under which a Quebec court may take jurisdiction of a matter in certain circumstances if access to justice will be denied in the foreign jurisdiction to which the matter in question actually related, although the enforcement of an order made in Quebec based upon this doctrine could be problematic, especially where the Quebec law on which the order is based conflicts with the foreign jurisdiction's law regarding inheritance or property entitlement.
C2.25 In order to 'probate' a will, that is, to submit a will to court to validate it and confirm the authority of the legal personal representative of the estate, it is necessary to submit the original will. Once probate has been granted, the will becomes a public document. It is then possible for any member of the public to search the court file and obtain a copy of the will, as well as any material which forms part of the court file, including documentation submitted in order to obtain the grant of probate.
Several Canadian provinces require that in order to secure a grant of probate, a sworn inventory of the estate must be submitted, i.e. a list and description of all assets of the deceased and their value. Others, such as Ontario (although expected Ontario regulations coming soon under recent amendments to the Ontario legislation may change this), do not require a formal inventory, but instead require that a sworn affidavit be included in the court application, which gives a total value of the estate as well as a breakdown between the value of personalty and real estate. Should any court proceedings be taken, such as to contest the will or to pass the accounts of the legal personal representative, these documents will also form part of the court file, which becomes a public record.
C2.26 In each province there is legislation which sets out the formal requirements for making a valid will.
The types of wills available vary between the Canadian provinces.
C2.27 In all provinces, the English form of a will is available, that is, a will in writing executed by the testator in the presence of two witnesses who subscribe the will in the presence of the testator.
C2.28 Several provinces also permit holograph wills, that is a will made wholly in the handwriting of the testator and signed by the testator. No witnesses are required for a holograph will. Holograph wills are recognised as being valid for all purposes in Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia, Newfoundland and Labrador, the Northwest Territories, Nunavut and the Yukon.
Prince Edward Island has not legalised holograph wills (except for active members of the Canadian Armed Forces), however, it has 'substantial compliance' legislation, allowing a court to determine if a holograph will can be accepted regardless of the statutory necessity for witnesses.
British Columbia does not permit holograph wills (again with an exception for active members of the Canadian Armed Forces); however, where a will is made outside of the province and deals with the devolution of movable property situate in the province, a holograph will will be valid and admissible to probate if it is made in accordance with the law in force at the time of its making in the place where:
(a) the will was made;
(b) the testator was domiciled when the will was made; or
(c) the testator had his or her domicile of origin.
C2.29 In Quebec, a civil law jurisdiction, notarial wills are also available. A notarial will is made before a notary and one witness, and in certain limited circumstances a second witness. The notary reads the will to the testator, and the testator makes a formal declaration that the will represents his or her last wishes. The testator, witness and notary then subscribe the will in each other's presence.
C2.30 As noted above at C2.14, several Canadian provinces are signatories to the Uniform Wills Convention. The Convention stipulates its own requirements for the execution of a valid will, including that the will be executed before two witnesses and an authorised person, who in the Canadian provinces is a lawyer, who in turn completes a certification form. As noted above, this form of will is seldom used because of the limited application of the Convention.
C2.31 Each province also has statutory provisions in its respective wills legislation dealing with qualification of witnesses to a will. By way of example, in Ontario if a witness to a will is a beneficiary or spouse of a beneficiary, any bequests to the beneficiary are voidable. Witnesses generally, under the common law rules, must have reached the age of majority and be mentally competent at the time of witnessing the will to be competent witnesses to a will.
C2.32 Each province's wills legislation stipulates the formal capacity required of a testator to make a will. In Ontario, for example, the testator must have attained the age of 18 years, with certain exceptions including certain military personnel who must attain the age of 16 years, and be mentally competent within the relevant legal definition of competency.
C2.33 As noted at C2.14 above in the context of the governing law for formal validity of a will, the general rule in respect of formal validity is that, for movables, the law of the domicile of the deceased at his or her date of death will be determinative. Through legislation the Canadian provinces have, however, extended the traditional private conflicts rules, so that several laws now govern validity of wills.
In general, such legislation recognises a will of movables to be a valid will if it was either valid where the will was made, or where the domicile of the testator was at the date of the making of the will. Some provinces also include the law of the place where the testator was a national when the will was made, the law of the domicile of origin of the testator, and the law where the testator had his or her habitual residence.
With regard to immovables, the general rule is that a will is recognised as a valid will if made in accordance with the law of the situs of the immovables. Ontario, however, applies the same rules of recognition for wills in relation to movables and immovables.
C2.34 As part of domestic will planning, multiple wills are becoming increasingly popular as a technique to avoid inter alia the increasingly high fees payable on application for a grant of probate, which are now levied in all of the Canadian provinces except Quebec (nominal fees are charged in all territories). For the international client who may have assets in a Canadian province, it will be important to consider how local law applies and what fees are exigible should it be necessary to seek probate in the particular jurisdiction. In Ontario, for example, estate administration tax – which is payable when seeking a grant of probate – is levied on the value of the assets of the estate. Should a person die domiciled in Ontario with substantial assets, including worldwide personalty, and real estate in Ontario, these assets will be exposed to a tax of approximately 1.5 per cent of their value. With proper planning, including the use of multiple wills and separate situs wills, such taxes may be minimised.
Some of the traditional reasons for using separate situs wills include expediting the probate process so that one does not have to await receipt of the original grant of probate in order to apply locally to have a grant issued. A separate situs will can be directly admitted to probate without such delay. Other reasons for using a separate situs will include to ensure that the will is valid in accordance with local law and to avoid some of the problems inherent in admitting a foreign will drawn in another form, under a different law and possibly in a different language, to probate in a foreign jurisdiction. In particular, should interpretation issues arise in future which might require judicial interpretation and hence resort to application of the foreign law, unwarranted complexity and expense will arise. All of these reasons have equal application in the Canadian context.
C2.35 In each province there is legislation which sets out the ways in which a will may be revoked. Generally, revocation occurs by making a new will if the new will includes a revocation statement (if no such statement is made, the new will revokes the old will only to the extent of any inconsistencies between the two wills) or by destruction of the will by the testator or at his or her direction. In addition, in most provinces, marriage will automatically revoke a will, unless the will was specifically made in contemplation of marriage. In several provinces, a formal divorce decree subsequent to execution of the will invalidates those provisions of the will referring to the testator's former spouse (but not the entire will), except where a contrary intention appears in the will.
C2.36 The purpose of securing a court order of probate in respect of a will is (a) to confirm the authority of the executor named in the will to act as the legal representative of the estate, and (b) to confirm the validity of the will. A grant of probate affords protection to the executor in administering the will and effecting a distribution of assets under its terms, should, for example, another later will be subsequently discovered. Proof of letters probate also provides statutory protection to third parties in dealing with the executor who has received the grant, including relying on his or her instructions. Many third parties, such as Canadian financial institutions, will require a grant of probate before the third party will allow the executor to administer the deceased's assets held with them, with certain exceptions including where the assets are of modest value where other comfort, such as an indemnity, may be adequate.
C2.37 To establish the validity of a will and the authority of the legal personal representative over the assets of a deceased, if the deceased died testate, the will is submitted to court together with supporting material for proof in 'common form', which does not require a formal court appearance and hearing. In some instances, however, including when the validity of the will is challenged, or when the original will has been lost or destroyed or when there are other issues regarding its validity, the court may require a formal open court hearing, which is generally termed 'proof in solemn form'.
The material which must be submitted to secure a grant of probate differs from province to province, but generally includes a valuation of the estate, and in some provinces, a sworn inventory of the assets of the deceased as at the date of death, together with the original will, and any codicils to it, and either an affidavit of one of the witnesses to the will or an affidavit confirming that the signature on the will is that of the testator.
C2.38 All provinces, with the exception of Quebec, charge probate fees based on the value of the estate. In Quebec there is no charge for notarial wills and a flat fee of $45 for holograph and witnessed wills, whilst in Ontario, for example, the fee is approximately 1.5 per cent of the value of the assets (with the exception of real estate outside the province) of the deceased.
Situs of assets will be relevant to probate fees payable. As noted, provincial probate fees are not levied on real estate outside the province. In Re Bloom Estate (2004) 5 ETR (3d) 1 (BCSC), a British Columbia court held that because securities held in an estate were maintained through a book entry system in Ontario and because probate legislation in British Columbia required probate to be levied on assets situated in the province, the value of the securities were not subject to provincial probate fees. The British Columbia legislature has since amended the definition of 'value of the estate' to include the intangible personal property of the deceased wherever situate.
C2.39 In contrast with the situation where the deceased dies testate and personal representatives are named in the will, if the deceased dies intestate there will be no named personal representative and it will be necessary to apply to court to have an administrator appointed for the estate. In certain provinces, including Ontario, the administrator must be a resident of the province where the deceased had his or her residence, unless a court orders otherwise, generally with the beneficiaries' consent. Most provinces require that an administration bond be filed with the court in order to obtain a court grant of letters of administration. In certain circumstances, however, the court may use its discretion to dispense with the need for a bond.
C2.40 Where a grant of letters probate is made by a court other than that of a Canadian province or by a British court, or, for some provinces, by a state of the United States, a new grant must be applied for in each province in order to allow assets to be administered there. This grant is usually referred to as a grant of ancillary letters probate.
If the grant of letters probate or of letters of administration is given by another Canadian province, a court of the United Kingdom, a British possession, or, in some provinces, by a state of the United States, the original grant may be 'resealed' as opposed to a new grant being issued, which is a somewhat simpler process.
In order for the foreign personal representative to have authority to deal with the assets in a Canadian province (including a personal representative from another province), it will be necessary to qualify as a personal representative by obtaining an ancillary grant or resealing the original grant where there is real estate and, often, also in respect of personalty where an institution requires a local grant before it will recognise the authority of the foreign personal representative.
Generally, each of the Canadian provinces will allow an original grant of probate to be made in respect of a deceased even though the deceased was not domiciled in the province, provided that there are assets in the province.
In order for a foreign personal representative to obtain a grant, whether an original grant or an ancillary grant, some provinces require that a bond first be posted, which the court has discretion to dispense with. Applications for a grant can be made by the applicant or by way of a nominee.
C2.41 The authority of an executor named under a will derives from the will itself and is effective from the moment of death. Accordingly, the executor is in a position to take charge immediately of the assets of the deceased. The executor's authority is not dependent on receipt from the court of a grant of probate. This is in contrast to the position of a court-appointed administrator, who has no power to act in the estate until a court order is made. The administrator's authority derives solely from the court order, and is generally more circumscribed than that of an executor appointed under a will.
C2.42 In respect of foreign personal representatives, the general position is that they have no authority to deal with assets in a foreign jurisdiction until their authority has been confirmed by way of obtaining a court grant in the jurisdiction. However, Canadian federal banking legislation allows a banking institution, at its discretion, to rely on a foreign grant of probate in dealing with the deceased's accounts and some provincial corporation statutes allow a corporation, at its discretion, to effect a transmission of shares based on a foreign grant or evidence of title other than a grant of probate, as the corporation sees fit.
In some provinces it has been held that strict common law principles of conflict of laws which hold that foreign executors cannot be added to an action in a jurisdiction outside the province in which they received their grant of probate apply (see, for example, Hill v Hill 2010 CarswellAlta 1629, 2010 ABQB 528 (Alta QB)). This rule derives from the common law principle that a court should not interfere with the administration of a foreign estate, and anyone seeking to bring an action against an estate or a deceased must do so in the jurisdiction where the executors derived their authority. However, some cases have relaxed this rule in certain circumstances (see Felton v Ranaghan [1955] 3 DLR 526 (Sask CA), for example).
C2.43 Under general common law principles, and relevant succession legislation in the common law provinces, upon death the assets and liabilities of the deceased vest in the deceased's personal representative, who is under an obligation to collect the assets and distribute them in accordance with the deceased's will. The personal representative of the estate has full legal ownership of the deceased's property and holds it on trust to pay the liabilities of the deceased and distribute the remainder to the beneficiaries. The beneficiaries, as such, do not have direct ownership of the property, but instead have equitable ownership only.
In contrast, under civil law principles, which apply in Quebec, the succession of the estate of a person commences on his or her death at the place of his or her last domicile. Ownership of the estate devolves immediately to the beneficiaries upon the death of the testator. The successors have the option of rejecting it or accepting it with the benefit of an inventory so as to protect themselves in case unexpected liabilities are discovered.
C2.44 Residents of Canada are taxed on their worldwide income. Non-residents are subject to Canadian tax on their Canadian-sourced income, subject to the provisions of any relevant income tax treaty.
Whether or not an individual is a resident of Canada for tax purposes is a question of fact. The Income Tax Act (Canada) ('ITA') does not contain a definition of residence. The ITA, however, automatically deems a person to be resident in Canada for tax purposes if such individual is resident in Canada for a period totalling 183 days or more in one taxation year.
With regard to trusts, if all the trustees of a trust are resident in Canada, the trust has generally been considered to be resident in Canada. Where some trustees are non-residents of Canada, determination of the residence of the trust is more problematic. Of primary importance has been determining where the trustee who manages and controls the trust assets resides. In the recent case of Garron Family Trust v The Queen 2009 TCC 450 (CanLII), 2009 DTC 1287 (TCC), the court held that the appropriate test to determine the residency of a trust is in fact the test used to determine the residency of a corporation, namely the central management and control test. The court also found that the non-resident trustee was a trustee in name only, and the Canadian-resident beneficiaries actually controlled the trust. The case of Dill and Pearman, Trustees of the Thibodeau Family Trust v The Queen 78 DTC 6376 (FCTD), until 2009 the undisputed authority for the residency of trustees test, was distinguished in such a way as to render it irrelevant. The Tax Court of Canada's decision was upheld on appeal (St Michael Trust Corp v The Queen 2010 FCA 309), and the Federal Court of Appeal noted that the determination of where the central management and control of a trust is actually located is fundamentally a question of fact. The Federal Court of Appeal's decision, and therefore the central management and control test for trust residency, was affirmed by the Supreme Court of Canada in Fundy Settlement v Canada 2012 SCC 14.
In Antle v The Queen 2009 TCC 465 (CanLII), the court found that the trust in question, which had trustees resident in Barbados, was never created, as the Canadian-resident settlor, despite signing a trust deed and other documentation, never intended to create a trust, and retained control over the trust assets and decisions throughout the relevant period, as well as finding that the trust was never properly constituted as the property in question was never transferred to the trust. The case was also upheld on appeal (Antle v The Queen 2010 FCA 280), leave to appeal to the Supreme Court of Canada dismissed (2012 CanLII 4145), although in this case the Federal Court of Appeal went further than the Tax Court of Canada, holding that not only was the trust not validly constituted, but since the trust deed did not reflect the true arrangement between the parties involved, the trust was in fact a sham, a finding the lower court had declined to make. The Federal Court of Appeal stated that the intent or state of mind necessary to give rise to a criminal intent to deceive was not necessary in order for the trust to be a sham, as it would be in a prosecution for tax evasion.
Income tax is levied at both the federal and provincial level. Provincial tax is computed as a portion of the federal tax, except in Quebec.
C2.45 There is no gift tax in Canada. A gift of capital property will, however, give rise to a disposition of property and may result in income tax consequences.
C2.46 In the Canadian system, capital gains are subject to taxation, and arise when capital property is disposed of. The capital gain is the difference between the property's adjusted cost base plus costs of disposal, and the proceeds of disposition. The adjusted cost is the actual cost of the property, subject to several adjustments. Proceeds of disposition are, generally, the actual proceeds, but are subject to certain deeming provisions which will deem the proceeds to be equal to the fair market value of the property in respect of dispositions which are not at arm's length. Preferential treatment is given to a principal residence which is exempt from taxation on capital gains. Also, an exemption of $750,000 of capital gains exists for shares of certain active Canadian-controlled private companies and for qualified farm and fishing property.
C2.47 For capital property, 50 per cent of the capital gain is taxable. If capital losses exceed gains in a year, 50 per cent of the loss over the gain is allowed as a capital loss and may be offset against the taxable capital gains of other years, including carry-back provisions for three years and an indefinite carry forward against future capital gains.
C2.48 Transfers of property, including by way of gift between non-arm's length parties as defined under the ITA, are subject to special rules for non-arm's length transfers. These rules have the effect of deeming that certain transfers have occurred at fair market value.
C2.49 A deferral of the taxation of capital gains is available in respect of certain transfers to spouses and common law partners, including same sex spouses, or to qualifying trusts in respect of the same. The property may be rolled over to the spouse or partner or qualifying trust on a tax-deferred basis, and is not subject to taxation until disposition by the spouse or common law partner or qualifying trust or on the death of the spouse or common law partner, whichever first occurs. Furthermore, a roll-over to defer taxation of capital gains is also available in respect of certain intergenerational transfers of farm property.
Canada Revenue Agency introduced legislation which came into effect in June 2001 to facilitate individuals aged 65 and older using an inter vivos trust for appreciated property by allowing a roll-over of appreciated property to an alter ego trust or to a joint partner trust, thereby deferring the capital gains tax on the transfer of property to such trusts. The alter ego trust and joint partner trust allow for the greater use of trusts as will substitutes, as well as in inter-provincial planning to take advantage of lower tax rates in some of the Canadian provinces and territories by siting a trust in these jurisdictions.
C2.50 Canada has a progressive system of income taxation, and the rate of tax paid increases with the level of an individual's taxable income. This creates an incentive to attempt to split income among lower-rate taxpayers in a family unit. To prevent abusive forms of income splitting, a complex set of rules exists under the ITA. When a transfer is to be made between spouses and family members, including by way of gift, these rules must be analysed to determine whether they will result in attribution of income to the transferor of the property.
C2.51 Succession duties or gift and inheritance taxes no longer exist in any of the Canadian provinces – nor do they exist at the federal level. The succession duty regime which existed at the federal level pre-1971 was effectively replaced by the capital gains regime effective from 1 January 1972. The last of the succession duties was repealed at the provincial level in 1986.
On death, income earned in the year of death is subject to taxation. On death, an individual is deemed to dispose of his or her capital property owned immediately before death for proceeds equal to the fair market value of the property, which can give rise to taxable capital gains in the year of death.
As discussed above with regard to lifetime gifts to a spouse, common law partner or a qualifying trust in respect of the same, rollover relief is also available on death if the surviving spouse or common law partner inherits capital property outright or through a qualifying trust. In addition, farm property that is inherited by a child, grandchild or great-grandchild is also eligible for a deferral of capital gains tax.
C2.52 Non-residents of Canada may be subject to Canadian taxation if they have taxable income earned in Canada or if they are subject to withholding tax on their Canadian-sourced income.
If a non-resident is either employed in Canada, has income from employment, carries on business in Canada or disposes of taxable Canadian property, he or she will be subject to Canadian tax.
Individuals who have never resided in Canada may still be subject to Canadian taxation if they have taxable Canadian property. On disposition of such property, including on deemed realisation on death, they are subject to Canadian tax on any taxable capital gains. Taxable Canadian property includes inter alia real property in Canada, shares of corporations other than most public corporations, a capital interest in a trust, certain partnership interests and capital property used by a taxpayer in carrying on a business in Canada. However, the 2010 Federal Budget contained several significant changes, which were subsequently enacted into law, to the definition of taxable Canadian property under the ITA, one of which is to limit the definition to include only a share of the capital stock of a private corporation, an interest in a partnership or an interest in a trust if, at any time during the 60-month period that ends at the time of the disposition of this property, more than 50% of the fair market value of the share or interest was derived directly or indirectly from one or any combination of (a) real or immovable property situated in Canada, (b) Canadian resource properties, (c) timber resource properties, and (d) options, interests, or rights in (a) to (c). This change significantly reduces the number of trusts and non-resident beneficiaries required to file information or obtain tax clearance certificates before disposing of capital interests in trusts. The revised definition of taxable Canadian property is applicable to any dispositions occurring after 4 March 2010. Dispositions of trust property occurring on or before 4 March 2010 or coming within the new restricted definition of taxable Canadian property will still be subject to the current tax clearance certificate requirements of ITA, s 116.
Taxation of non-residents is subject to treaty relief in respect of countries with which Canada has entered into a tax treaty. Where an individual is considered resident for tax purposes in more than one jurisdiction, resort may be had to any 'tie-breaker' rules under the applicable tax treaty to determine which country will assert its tax jurisdiction.
Given that Canada is one of the few jurisdictions in the world which does not have an inheritance tax or succession duty regime, but instead taxes capital gains on death, problems of potential double taxation arise both for Canadians owning property in a foreign jurisdiction which may also impose an inheritance tax or succession duty, and vice versa for the non-resident who owns taxable Canadian property, which as outlined above is subject to Canadian taxation on any capital gains.
In particular, this was a serious problem between Canada and the US given the frequency of cross-border ownership of property. Relief from potential double taxation is now available as a result of the 1995 Protocol to the Canada-US Tax Treaty. As a result of the Protocol, there is a tax credit available against US estate tax paid which can reduce Canadian tax on the deceased's final tax return. US estate tax paid on US real estate can be used to offset capital gains arising on the deemed realisation of property on death of the deceased and on certain types of US source income, such as dividends and certain US wages. In addition, for estates exceeding the total gift and estate tax effective exemption limit applicable at the time of the deceased's date of death, US estate tax may also be used to offset capital gains tax which arises on death from US stocks which are deemed to be disposed of at death. (Note that the exemption limits have been rising in recent years under the relevant US legislation and for 2010 the effective exemption limit was unlimited. The US Government has now enacted legislation which provides for a $5 million effective estate tax exemption limit and a 35% estate tax rate for 2011 and 2012, however, under this legislation the limit and rate will return to 2002 levels ($1 million and 55%) in 2013. Permanent changes to the limit and rate are expected by 2013, however the 2012 presidential and congressional elections make this far from certain. Current extensions of the original US legislative tax limits have been proposed by President Obama, but these do not include an extension of the current estate and gift tax limits.)
Similar relief is afforded to US taxpayers by a credit against US estate tax for Canadian capital gains paid on the death of a US taxpayer.
An estate planning technique commonly used by Canadian residents to shelter US estate tax exposure for US situs assets is the use of either a Canadian holding company or a trust, with the objective of altering the situs of the assets held. In 2004, Canada Revenue Agency took the position that there will be a shareholder benefit where any personal-use real property is acquired by a single purpose corporation or there is an acquisition of shares of a single purpose corporation holding personal-use real property (except as a result of the death of the individual's spouse or common law partner). This position now curtails the use of holding US personal-use real property through a single purpose corporation.
With regard to the taxation of non-resident trusts, draft legislation has been under review since 2000 and has yet to be proclaimed into law (the 'NRT Proposals'). The NRT Proposals intended to tax certain non-resident trusts as deemed residents of Canada with a view to reducing opportunities for the establishment of a non-resident trust for the benefit of Canadian resident beneficiaries or by Canadian resident contributors, accordingly reducing the scope for offshore tax planning using trusts.
Responding to widespread criticism of many aspects of the NRT Proposals, the 2009 Federal Budget promised that the proposed rules would be revised yet again and the Government would especially attempt to reduce their complexity and lack of clarity. The 2010 Federal Budget carves out from the taxable assets of the non-resident trust the assets that do not relate to a Canadian resident beneficiary or contributor. Only the Canadian resident-related assets will be taxable in Canada. It should be noted that the proposals remain complex, despite the changes announced in the 2010 Federal Budget. The NRT proposals have continued to be part of the 2011 and 2012 budgets, but have yet to be enacted, and it is unknown when these provisions will come into effect.
C2.53 Non-residents are subject to withholding tax on various payments from Canadian sources, including certain types of interest income, dividends, income from an estate or trust, rents and royalties, pension income and various retirement arrangement payments.
Where a Canadian resident taxpayer receives income from foreign-sourced investments or from real property in another country, he or she will be taxable on it in Canada. A provincial and federal tax credit is available against Canadian tax where such income has been subject to taxation in the jurisdiction from which it has been sourced.
C2.54 A taxpayer is liable for the payment of tax and must file a return of his or her income each year and pay the tax owing. In respect of an estate or a trust, the legal personal representative of the estate, or the trustee of the trust, has the legal responsibility for tax compliance matters. The legal personal representative or trustee has personal liability for any taxes, interest or penalties that remain unsatisfied in respect of an estate or trust under his or her control to the extent of the value of the property distributed, if he or she distributes property without first obtaining a clearance certificate from Canada Revenue Agency. A trustee also has personal exposure to liability with respect to necessary filings related to non-resident beneficiaries of the trust.