Significant tax re-assessment due to an estate valuation gone wrong

I have been writing about valuations for estate plan agreements, highlighting that they should be based on fair and reasonable methods, prepared in good faith, properly supported and documented at the time of valuation.

In Lewin v. the Queen 2019 TCC 21, The Lewin Estate was appealing a significant tax reassessment of the deceased’s terminal return issued some five years after the original assessment. The issue to be decided is whether the Minister of National Revenue was justified to reassess the estate based on its determination the actual fair market value of the assets owned by the deceased, beyond the limitation period due to a misrepresentation of the actual fair market value of the deceased’s assets and, if so, whether the misrepresentation is attributable to Estate’s executor neglect, carelessness or willful default when filing the appellant’s terminal return.

The executor who made the original filing and made a determination of the fair market value of the assets owned by the deceased was a chartered accountant and he and his firm were responsible for prior tax filings of Mr. Lewin’s companies.

In the appeal, the Court felt the evidence was clear that the accountant executor made obvious errors in calculating the fair market value of the deceased’s assets, some of the errors were acknowledged by him during his testimony. He acknowledged for instance he made an error in not including the value of 2 subsidiaries held by Mr. Lewin’s holding company. Errors were also made to the valuation of marketable securities and the collections status of a dividend receivable from a subsidiary.

The Court concluded that that there was neglect on the part of the accountant executor in the performance of his duties as an executor of the estate to ensure that the terminal income tax return was properly filed. The calculation of the fair market value of the deceased’s assets was not carried with due care by an in-depth analysis of the supporting material.

The appeal was dismissed with costs.

I note that engaging a valuation expert is not an absolute requirement but in reading this case, the use of an independent professional valuator may have alleviated some of the errors in calculations and judgments made with the valuation determination and save the estate all the additional costs incurred as a result.

As featured on All About Estates Blog where Baker Tilly WM Partner, Steven Frye, is a regular contributor.