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.
Principal Issues: Whether executor's fees received for the administration of an estate constitute income from an office?
Position: Yes
Reasons: Where an executor of an estate does not act in that capacity in the course of carrying on a business, the fees for acting as executor are income from an office.
XXXXXXXXXX 2005-015088
XXXXXXXXXX, 2005
Dear XXXXXXXXXX:
Re: Advance Income Tax Ruling Request
XXXXXXXXXX
XXXXXXXXXX
This is in reply to your letter of XXXXXXXXXX, wherein you requested an advance income tax ruling on behalf of XXXXXXXXXX, two of three executors and trustees (the "Executors" or "Applicants") of the Estate of the late XXXXXXXXXX (the "Estate"). At issue is the question of the tax treatment of fees earned for the administration of the estate.
We understand that, to the best of your knowledge and that of the Applicants involved, none of the issues involved in the ruling request is:
(a) dealt with in an earlier tax return of either Applicant or a related person;
(b) being considered by a tax services office or taxation centre in connection with a previously filed return of either Applicant or a related person;
(c) under objection by either Applicant or a related person;
(d) before the courts or, if a judgment has been issued, the time limit for appeal to a higher court has expired; or
(e) subject of a ruling previously issued by the Income Tax Rulings Directorate.
Unless otherwise stated, all references to a statute are to the Income Tax Act, R.S.C. 1985 (5th Supp.), c.1, as amended, (the "Act").
Our understanding of the facts, proposed transactions and the purpose of the proposed transactions is as follows:
Facts
1. In XXXXXXXXXX the decedent, XXXXXXXXXX (the "Deceased"), learned that he was suffering from XXXXXXXXXX. At that time and from then on, the Deceased consulted with his lawyers and accountants in regard to estate planning.
2. On XXXXXXXXXX, the Deceased signed what became his final wills (the "Wills"). The Wills consist of two complementary wills, a common procedure to reduce the amount of "probate fees" payable in XXXXXXXXXX. The Wills provide for a spousal trust for XXXXXXXXXX with a remainder interest to XXXXXXXXXX children.
3. The Deceased passed away on XXXXXXXXXX.
4. The Executors of the Estate were named as executors under the Wills. The Executors were selected on the basis of their friendship to the Deceased.
5. The Deceased had met XXXXXXXXXX in XXXXXXXXXX as a consequence of their mutual involvement in XXXXXXXXXX business. Over the years their personal friendship grew, with the two taking holidays together and regularly XXXXXXXXXX
6. XXXXXXXXXX is neither a lawyer nor an accountant. XXXXXXXXXX had previously acted as an executor on only one occasion XXXXXXXXXX.
7. XXXXXXXXXX social insurance number is XXXXXXXXXX.
8. The Deceased had met XXXXXXXXXX in XXXXXXXXXX through their mutual involvement in XXXXXXXXXX. Their friendship developed rapidly based on their common positions in life, including the fact that XXXXXXXXXX.
9. On learning of his illness, the Deceased confided in XXXXXXXXXX and a few others. Together, they assisted the Deceased in navigating the medical bureaucracy to obtain the best treatment. XXXXXXXXXX.
10. XXXXXXXXXX is neither a lawyer nor an accountant. XXXXXXXXXX had not previously acted as an executor.
11. XXXXXXXXXX social insurance number is XXXXXXXXXX.
12. On the Deceased's death, the Estate held XXXXXXXXXX corporate and partnership interests in XXXXXXXXXX businesses.
13. Since XXXXXXXXXX, the Executors have been called upon to deal very extensively with the affairs of the Estate, including making strategic and operational decisions relating to the various assets, negotiating with XXXXXXXXXX minority partners and lenders, in addition to the day to day managing of XXXXXXXXXX assets of the Estate. These dealings have required numerous lengthy meetings and discussions, with frequent reliance on professional advisors. These requirements were in addition to deciding about potential distributions from the corporate and partnership holdings, reinvesting such distributions and income tax matters.
14. XXXXXXXXXX
15. The Executors continue to commit considerable effort to the on-going management of the assets of the Estate and will be required to do so for some time into the future.
Proposed Transaction
16. The Estate will be paying compensation to XXXXXXXXXX for their efforts as executors and trustees of the Estate before the end of XXXXXXXXXX. Each of the Executors expects to receive $XXXXXXXXXX in recognition for XXXXXXXXXX activities as an executor and trustee of the Estate (the "Fees"). Court confirmation of these Fees is expected in the manner described in the Facts section of this ruling request.
Purpose of Proposed Transaction
17. The Estate proposes to compensate the Executors for the considerable time and effort in the management of the assets of the Estate.
Ruling Given
Provided that:
(a) The preceding statements constitute a complete and accurate disclosure of all relevant facts, proposed transactions and the purpose of the proposed transactions;
(b) The proposed transactions are completed in the manner described above; and
(c) There are no other transactions, which may be relevant to the ruling requested,
our rulings are as follows:
A. The activities of the Executors have been carried out in the course of, or in relation to, the position of an "office" as defined in subsection 248(1) of the Act.
B. Paragraph 6(1)(c) of the Act will apply to include the Fees in computing the income of the Executors.
These rulings are given subject to the limitations and qualifications set out in Information Circular 70-6R5 issued on May 17, 2002 by the Canada Customs and Revenue Agency, now the Canada Revenue Agency (the "CRA"), and are binding on the CRA provided that the proposed transactions are implemented on or before XXXXXXXXXX.
Except as expressly stated, these rulings do not imply acceptance, approval or confirmation of any income tax implications of the facts or proposed transactions.
As stated in your letter, the Estate will be required to withhold tax and make Canada Pension Plan remittances in respect of the Fees, and prepare and issue a T4 slip to each of the Executors.
Yours truly,
XXXXXXXXXX
Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch
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