Law Times

Law Times • February 9, 2015 Page 7 www.lawtimesnews.com COMMENT New estate tax rules evidence of bureaucracy in action By Barry CorBin For Law Times n Dec. 22, Ontario's minister of finance filed a regulation pursuant to authority given to him by the government in May 2011 when it amended the Estate Administration Tax Act. The regulation will require every person who applies for a certificate of appointment of estate trustee to file an information return with the minister with details of the deceased person's assets whose values helped de- termine the amount of estate administration tax owing. The tax amounts to $5 per $1,000 on the first $50,000 of estate value and $15 per $1,000 of estate value in ex- cess of $50,000. There is no cap. As part of the court ap- plication process, an estate representative must swear the truth of two amounts: first, the aggregate value of the deceased's real property (net of registered encum- brances); and second, the aggregate value of all of the deceased's other property. Currently, there is no process allowing for a government review of the declared val- ues to confirm that the correct amount has been paid. However, once the regulation took effect on Jan. 1, the minister of finance was in an effective position to exer- cise his authority to audit and verify those values and, in the event of a disagreement, assess the estate for addi- tional tax based on the higher values he considers to be correct. The new regime will thus operate in a manner similar to our self-assessing income tax system. In theory, there is nothing objectionable about add- ing an audit and verification authority to a self-assessing system. But since audit and verification necessarily entail added government expense, we must ask why, after de- cades without such authority, the province chose to es- tablish one. The only logical reason is its belief that there is substantial tax leakage attributable to estate asset values that are far too low due to the estate trustee's dishonesty or a careless attitude in the valuation exercise. This entire affair began with a decision by the former NDP government, strapped for cash, to triple the rates in 1992. Tracking the estate administration tax revenues for the 20-year period preceding the rate hike reveals that the average year-over-year increase was slightly less than 10 per cent. Had Ontarians ig- nored the rate hike, year-over-year increases in estate administration tax revenues would presumably have continued, resulting in $685 million for Ontario's 2014 fiscal period. The actual revenues were $142 mil- lion. What accounts for this apparent shortfall? Surely, it cannot be that estate representatives have been con- sistently undervaluing or perhaps even excluding es- tate assets by more than 75 per cent of actual value? It is far more likely that the oft-mentioned trillion-dol- lar transfer of wealth from parents to their children has begun to take place not by means of a will but by means of jointly held property. Where individuals A and B hold an asset as joint-with-right-of-survivorship, the death of A will see B acquire 100-per-cent ownership without the deceased's former fractional interest passing through the estate and thereby reducing the estate administration tax payable. Such ownership of property between marital partners has been commonplace for generations. How- ever, because it is possible to change property from sole to joint ownership at relatively little legal cost, there is ev- ery reason to believe that since 1992, single parents, faced with the tripling of rates, have begun using the same de- vice to pass significant wealth to their children. (Making such property ownership changes without the benefit of competent legal advice can be dangerous because the transfers can create other costly legal problems and they can facilitate financial abuse of an aging and vulner- able parent. In addition, because the parent effects the changes without documenting actual intention, they can create family feuds over the ownership of those properties after death.) In a single year, there are approximately 20,000 court applications for a certificate of appointment of estate trustee. The Ministry of Finance has ac- knowledged that it does not have the resources to re- view every information return filed. Only the ministry knows how many of those returns it will select for audit and what the selection criteria will be. But there are sev- eral reasons why the additional tax collected with this new machinery in place will be minimal: First, joint ownership will continue apace. Indeed, it may accelerate in order to minimize or avoid the obliga- tion to complete and file the new information return and, perhaps, the risk of fines and imprisonment an estate rep- resentative faces for failing to do so, filing it beyond the prescribed deadline or making a misrepresentation. As well, people with significant wealth have for many years been employing perfectly valid devices other than joint ownership to minimize estate expo- sure to the tax. They will continue to do so. In addition, the ministry has said the estate trustee will not be personally liable for additional tax if it is- sues a notice of assessment after the estate assets have been distributed to the beneficiaries or next-of-kin entitled. Can we expect the ministry to pursue benefi- ciaries living outside Canada for additional tax? Even if it made sense to do so, the government would face a long-entrenched principle of private international law: the courts of one jurisdiction will not enforce another jurisdiction's revenue laws. In sum, a new regime is now in place that will cost millions of taxpayer dollars to administer; put many thousands of people every year to the trouble of filing information returns that no one will ever look at; and collect negligible additional revenues. Is this not the definition of bureaucracy? LT uBarry Corbin is a lawyer at Corbin Estates Law PC. u SPEAKER'S CORNER Time for a constructive look at bail controversies he other day, a colleague of mine won an appeal for a client previously convicted of a seri- ous offence with the Court of Appeal holding that the trial judge's rea- sons for conviction were legally insuf- ficient. The appeal court ordered a new trial. While that was good, what made the victory somewhat pyrrhic in nature was the fact that the client had been sit- ting in jail while the appeal proceedings were playing out. By the time the court quashed his conviction, he'd served al- most all of the sentence originally im- posed. My colleague had tried to avoid this outcome at the very outset by applying for bail pending appeal. But a judge of the Court of Appeal denied the application on the grounds that the appeal appeared weak and unlikely to succeed. I don't nec- essarily fault the judge for deeming an ap- peal to be weak that a panel of the court would later determine to be wholly meri- torious. It's difficult to predict at the be- ginning of any court process who's likely to prevail once all the evidence and sub- missions are in. But when it comes to de- taining people in custody based on prog- nostication about the future, the potential for a wrong guess that leads to an injustice is precisely the problem. This brings me to the case of Shawn Rehn, whom police say shot two Mount- ies at a casino outside Edmonton on Jan. 17 before killing himself. A public debate followed the disclosure that Rehn was on bail at the time with the court having granted him release twice in the past 14 months despite having a lengthy crimi- nal record that included some crimes of violence amongst a host of lesser offences. According to The Globe & Mail, by the age of 32 Rehn had served three federal penitentia- ry sentences and accumulated close to 60 entries on his re- cord. Nonetheless, he seems to have had little difficulty getting bail on his most recent charges and the court apparently didn't even require him to present a surety to supervise his compli- ance. RCMP commissioner Bob Paulson was outspoken in criti- cizing the system for having repeatedly released Rehn notwithstanding his unen- viable history. My experience tells me that in Ontario, rightly or wrongly, his release would have been more difficult to secure and all but impossible without a reputable surety and a number of strict conditions the surety would have to supervise on pain of losing a lot of money. That won't stop anyone from going on a murderous rampage, of course, but I haven't seen any indication that Rehn gave notice of his homicidal tendencies or that anyone should have been aware of them. It's un- fair to fault anyone for failing to anticipate an aberrant outburst of violence. Still, it may well be true that Rehn should have faced greater obstacles to re- lease or never gotten bail altogether. The system may have failed in this instance. The system includes individuals who are capable of making mistakes based on poor judgment, overwork, inattention or any number of other factors. And reason- able people can disagree about the appro- priate result of a given bail hearing. The court must make judgment calls, some of which turn out in hindsight to have been questionable or even wrong. But any sensible public de- bate must also take into account cases like that of my colleague's client where the system misfires in the other direction. These kinds of cases are, I think, a lot more common than the horror stories of a released person who runs violently amok. It's true that in these cases, nobody dies as a result. But those denied bail can't get back the lost time spent unjustly be- hind bars and monetary compensation is almost never available. The common parlance doesn't usually consider denial of bail to someone who later succeeds in obtaining an acquit- tal to be a miscarriage of justice. Maybe it should be. As it is, nobody hears about these cases. Public outrage isn't forthcom- ing. And yet, unlike my colleague's ap- peal client, people who are merely facing a charge enjoy a constitutional right not to be denied reasonable bail without just cause. That right is a fundamental aspect of the presumption of innocence, the cor- nerstone of our system. A person can't ex- ercise it, however, if police officers, pros- ecutors, and judges treat every accused as a potential killer. Last year, the Canadian Civil Liber- ties Association released a compelling report on the bail system. Contrary to the impression of laxity some have taken from the Alberta case, it paints a picture of reluctance by police to exercise their statutory powers to release people from the station, intractable delays in process- ing bail, overreliance on sureties, rou- tine imposition of overly restrictive bail conditions, and a proliferation of charges of failure to comply based on conditions the court should never have imposed in the first place. This last phenomenon is particularly troubling, in my view, because it speaks to a systemic inertia in which jail leads to more jail, on its own momentum, with no socially beneficial end in sight. All of this can seem tedious and statistical to those who haven't had family members or cli- ents on the wrong end of an unreasonable denial of bail or a trivial charge of breach. But these trends need to be front and centre in the debate over bail if the latest headline-making tragedy is going to help spur constructive ref lection rather than misguided reaction. Writing in The National Post recently about the Alberta case, Christie Blatch- ford made a provocative point: Rehn's case isn't about the need to be tougher on crime at all. It shows us that jail doesn't work. Rehn was in jail for a good chunk of his adult life, serving sentences that were by no means lenient. Jail didn't deter him. It didn't rehabilitate him. We can only surmise, but there's a good chance that it played a role in keeping him on the petty- crime treadmill. That doesn't excuse or even fully explain his behaviour. It would be reductive and glib to lay all of the blame for an ordinary criminal's wrongdoing at the feet of the system. But it does suggest that more jail is unlikely to be an effective prophylactic against the kind of tragedy that unfolded near Edmonton. LT uMatthew Gourlay handles criminal and regulatory matters at Henein Hutchison LLP with an emphasis on appellate litiga- tion. He's available at mgourlay@hhllp.ca. A Criminal Mind Matthew Gourlay T O

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