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: Various questions posed regarding tax treatment, reporting and withholding requirements in respect of executors' fees.
Position: See response.
Reasons: See response.
Ontario CTF Conference October 30, 2012
Executors' Fees and Withholding
In IT-377R, at paragraph 5, the CRA stated the following:
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.)
1) Does the foregoing still represent the CRA's approach to the income tax treatment of executors' fees?
2) If an executor's fees are income from a business, is the estate required to issue a T4A to the executor in respect of the fees paid to the executor?
3) If the executor's fees are employment income, it would appear that the estate must withhold and remit amounts for income tax as required by subsection 153(1) of the Income Tax Act (Canada) (the "Act") and for CPP contributions under the corresponding provisions of the Canada Pension Plan. Must an estate withhold and remit amounts for employment insurance premiums under the Employment Insurance Act?
1) As you may be aware, Interpretation Bulletin IT-377R Director's, Executor's or Juror's Fees was archived several years ago. However, it is still the view of the Canada Revenue Agency that generally, the fees earned for the administration of an estate by an executor will be treated either as income from a business or income from an office. Fees earned by a taxpayer for acting in the capacity of an executor in the course of a business are included in the business income of the taxpayer under subsection 9(1) of the Act. Where the taxpayer does not act in the course of carrying on a business, the executor fees are included in income under paragraph 6(1)(c) of the Act.
Note that this view is confirmed in severed technical interpretations 2005-0164831E5 dated July 31, 2006 and in 2007-0225651E5 dated July 12, 2007. One may also wish to reference the decision of Justice Lamarre of the Tax Court of Canada in the case of Messier et al v The Queen (2008 TCC 349), wherein the facts of the case led to a conclusion that amounts received by the appellants for services as executors of their uncle's estate constituted income from an office, despite reference to the amounts as a legacy in the will of the deceased.
2) The fees earned for the administration of an estate by an executor will be treated either as income from a business or income from an office, depending on the particular circumstances of each case.
In the situation you have described, the fees earned by the taxpayer acting in the capacity of executor in the course of business form part of the business income of the taxpayer under subsection 9(1) of the Act. Generally, a person making a payment of fees, commissions or other amounts for services described in paragraph 153(1)(g) of the Income Tax Act (the "Act") is required under subsection 200(1) of the Income Tax Regulations (the "Regulations") to make an information return in prescribed form (T4A), even if no amount of income tax has been withheld at source. Accordingly, in the situation you describe, the estate is required to issue a T4A to the executor. However if the amount of the payment is less than $500, the Canada Revenue Agency (the "CRA") generally waives the T4A reporting requirement unless income tax was withheld at source, in which case, a T4A must be issued.
Also, as noted on page 16 of the T4A guide (RC4157),
"Until such time as the CRA undertakes a review for the purposes of clarifying the types of fees for services that are to be reported on the T4A slip, taxpayers will not be penalized for failing to complete Box 048 on the T4A slip."
3) If the executor's fees are employment income, an estate does not have to withhold and remit amounts for employment insurance premiums under the Employment Insurance Act (the "EI legislation"). This is because an executor would be in tenure of office and, as such, his earnings would not be insurable and thus no premiums would be withheld. The EI legislation does not generally include tenure of office as insurable employment, unless the conditions of paragraph 6(f) of the EI Regulations are met. This provision is narrow and essentially includes government and union officials.
October 30, 2012
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