20 November 2002 GST/HST Interpretation 41962 - Whether Executors' Fees are Subject to GST

Dear XXXXX

Thank you for your letter of XXXXX (with attachments) concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to the fees paid by an estate to three executors appointed pursuant to the will of a deceased individual.

Interpretation Requested

We understand the following from the information provided in your letter and our telephone conversation of XXXXX:

1. Three executors were appointed pursuant to the will of a deceased individual: the XXXXX of the deceased; a freelance bookkeeper appointed due to XXXXX past working relationship with the deceased; and, a lawyer appointed due to XXXXX friendship with the deceased.

2. Each of the three received compensation from the estate for acting as executors and trustees of the estate.

3. The XXXXX previously acted once as executor of XXXXX's estate.

4. The freelance bookkeeper does not act as an executor of any other estate, and in the past acted twice as executor, without compensation, of the estates of two relatives. XXXXX does not offer XXXXX services as acting as executor of estates to the general public. The fees paid to XXXXX by the estate will not be income from a business under the Income Tax Act because XXXXX is not in the business of acting as an executor and the fees will be income from an office.

5. The lawyer specializes in Human Resources and Employment Law and does not personally offer XXXXX services as acting as executor of estates to the general public and has never acted in such capacity in any other estate. XXXXX does not provide any legal services to the estate; however, the law firm with which the lawyer is affiliated provides legal services to the estate and charges the estate for the services. The fees charged by the firm to the estate are independent of the compensation paid by the estate to the lawyer. The compensation received by the lawyer from the estate would be treated as income from an office and not from a business under the Income Tax Act because the fees XXXXX receives for acting in the capacity of executor could not be treated as income from XXXXX business of practising law.

6. You submit that based on the definitions of "taxable supply", "commercial activity", "business", and "office" in subsection 123(1) of the Excise Tax Act (the "ETA"), the definition of "office" in subsection 248(1) of the Income Tax Act, GST Question & Answer #3d.21, and a finding that in the cases of both the freelance bookkeeper and the lawyer the compensation would be income from an office under the Income Tax Act, the fees would not be subject to GST.

7. In your view the position of the CCRA outlined in GST Question & Answer #3d.21 is not clear with respect to the freelance bookkeeper and the lawyer because the bookkeeper was appointed executor due to XXXXX past working relationship with the deceased individual (i.e. XXXXX did extensive work for the individual in the past), and the lawyer is affiliated with a law firm that is rendering legal services to the estate. Therefore, you request our views on whether the fees paid to the bookkeeper and the lawyer in the above scenarios are subject to GST.

Interpretation Given

Whether the fees paid to a person for acting as executor in the administration of an estate are subject to GST/HST depends on whether the fees are consideration for a taxable supply, in this case of a service, made in the course of a commercial activity of the person.

The definition of "commercial activity" in subsection 123(1) of the ETA provides, in part, that commercial activity means a business carried on by a person, except to the extent it involves the making of exempt supplies, while the definition of "business" in subsection 123(1) of the ETA provides, in part, that "business" includes a profession, calling or trade, manufacture or undertaking of any kind whatever but does not include an office or employment. Further, pursuant to the definition of "service" in subsection 123(1) of the ETA, any duty performed or anything supplied by a person in the course of or in relation to an office or employment is not a "service" for purposes of the ETA. Therefore, a duty performed by a person in the course of or in relation to an office or employment is not a supply of a service made in the course of a commercial activity of the person, and compensation in respect of such activity is not subject to GST/HST.

In determining whether the amount paid is in respect of an office, subsection 123(1) of the ETA provides in part that ""office" has the meaning assigned by subsection 248(1) of the Income Tax Act, but does not include ... (c) the position of trustee of a trust or personal representative of a deceased individual where the person who acts in that capacity is entitled to an amount for doing so that is included in computing, for the purposes of that Act, the person's income or, where the person is an individual, the person's income from a business;". Where an executor's fees are income from a business of an individual pursuant to the Income Tax Act they are considered to be in respect of the supply of a service made in the course of a commercial activity pursuant to the ETA, and unless the person is a small supplier who is not required to be registered for purposes of the ETA, the person will be required to collect GST/HST in respect of the fees. However, where the compensation is income from an office for purposes of the Income Tax Act, and is not excluded from the definition of "office" in the ETA, the individual is considered to be performing a duty or act in the course of or in relation to an office or employment and therefore GST/HST does not apply to the amount paid.

For purposes of the Income Tax Act, IT Bulletin 377R states how the fees paid to an executor for the administration of an estate are treated under that Act:

"5. A fee earned for the administration of an estate by an executor thereof will be treated either as income from a business or income from an office, depending on the particular circumstances of each case. Fees earned by a taxpayer for acting in the capacity of executor in the course of business form part of the business income of the taxpayer, and expenses incurred in this connection are deductible in the usual way in computing such income, to the extent they are not recoverable from the funds of the estate. Where the executor is a person who does not act in this capacity in the course of carrying on a business, the fee for acting as executor is considered to be income from an office. (Such a situation could exist even where the executor is a lawyer if the normal practice does not include executorships and the lawyer was appointed on personal grounds, perhaps because he or she was a friend or relative of the deceased.)"

The treatment under the ETA of executors' fees paid to an individual turns on a determination of whether the fees are income from a business or an office under the Income Tax Act. Whether the fees are income from a business or an office is a question of fact. Therefore, where it is determined that the fees paid to an individual for acting as executor in the administration of an estate are income from an office and not of a business under that Act, they will not be subject to GST/HST under the ETA.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Canada Customs and Revenue Agency with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-9213.

Yours truly,

Susan Kissner
Specialty Tax Unit
Financial Institutions and Real Property Division
Excise and GST/HST Rulings Directorate