Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CCRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ADRC.
Principal Issues: In a situation described in paragraph 4 of IT-377R, i.e., "where an individual is acting on behalf of or representing a corporation (or partnership) as a director and the fees in respect of such services are paid directly, or are turned over by the individual, to the corporation (or partnership), those fees are considered to be income of the corporation (or partnership) and not of the individual", is withholding required.
Position: No.
Reasons: The position outlined in paragraph 4 of IT-377R is based on the fact that the fees are not actually earned by the individual "in the course of, or by virtue of an office or employment", but by the corporation (or partnership) in the course of carrying on its business. As such, the fees do not represent income that is "salary, wages or other remuneration" or "director's or other fees", which are required to be included in the individual's employment income by virtue of subsection 5(1) and paragraph 6(1)(c) of the Act, respectively. Since the fees are not employment income, subsection 153(1) of the Act and Part I of the Regulations do not require the payor to make withholding on behalf of the individual.
Randy Hewlett, B.Comm.
XXXXXXXXXX 613-957-8973
2003-002031
June 13, 2003
Dear XXXXXXXXXX:
Re: Withholding on Directors' Fees Earned on Behalf of a Partnership
We are writing in response to your letter of May 23, 2003, wherein you requested our opinion on the withholding requirements under the Income Tax Act (the Act), as it pertains to the fees that are received by lawyers of your firm while serving on its behalf as directors of client companies.
Your letter indicated that the fees received by lawyers while acting as directors of client companies must be turned over to the firm and are included in its income in accordance with the position outlined in paragraph 4 of Interpretation Bulletin IT-377R, Director's, Executor's and Juror's Fees, which states:
Where an individual is acting on behalf of or representing a corporation (or partnership) as a director and the fees in respect of such services are paid directly, or are turned over by the individual, to the corporation (or partnership), those fees are considered to be income of the corporation (or partnership) and not of the individual. Of course, where such fees are received by an individual or credited, either directly or indirectly, to the individual's account for his or her personal benefit, they will be included in that individual's income.
On this basis, you have asked us to confirm that your clients are not required to make withholdings at source on these payments.
Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. However, we offer the following general comments.
The position outlined in paragraph 4 of IT-377R is based on the fact that the fees are not actually earned by the individual "in the course of, or by virtue of an office or employment", but by the corporation (or partnership) in the course of carrying on its business. As such, the fees do not represent income that is "salary, wages or other remuneration" or "director's or other fees", which are required to be included in the individual's employment income by virtue of subsection 5(1) and paragraph 6(1)(c) of the Act, respectively. In our view, since the fees are not employment income, subsection 153(1) of the Act and Part I of the Income Tax Regulations (the Regulations) do not require the payor to make withholding on behalf of the individual.
It should be noted that the recipient or beneficiary of a payment that is subject to withholding under subsection 153(1) of the Act and Part I of the Regulations, is not responsible for this determination. This responsibility rests with the "person paying" the amount. If the payor requires assistance or confirmation, the payor should contact the Client Services Division of the relevant Tax Services Office.
We trust our comments will be of assistance to you.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Legislation Branch
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