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: Are payments to incorporated members of a professional association who serve on the association's council or committees subject to withholding pursuant to paragraph 153(1)(a)?
Reasons: Members participating in the association's council and separate committees are participating by virtue of their roles members of the association and not as representatives of their incorporated practices.
December 20, 2013
Re: Withholding on Directors' Fees
We are writing in response to your letter dated November 27, 2012, in which you requested our views on the withholding requirements under the Income Tax Act (the "Act"), as it pertains to the fees that are paid by XXXXXXXXXX (the "College") to members of the College for serving on the College's council or one of its separate committees. We apologize for the delay in responding.
Your letter indicated that the College is regulated by the XXXXXXXXXX (the "XXXXXXXXXX Act"). According to the XXXXXXXXXX Act, the College's responsibilities include XXXXXXXXXX to practice in XXXXXXXXXX. The College has a council along with separate committees that assist in the College's responsibilities. Members of the council and committees are paid by the College for their participation. You have advised us that the majority of the XXXXXXXXXX that represent the council or committees have incorporated their respective practices.
On this basis, you have asked us to confirm whether the College is required to make withholdings at source on payments to council or committee members who have incorporated their practices. In particular, you refer to our comments in our interpretation letter 2007-0246031E5, where we stated that, in certain circumstances, the CRA would accept that fees paid to a director may be regarded as income of the corporation.
This technical interpretation provides general comments to assist you in determining the income tax treatment of your particular fact situation. The income tax treatment of specific transactions will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted as set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.
Paragraph 153(1)(a) requires that every person paying "salary, wages or other remuneration
" withhold and remit income tax in accordance with prescribed rules. In order to determine if income tax should be withheld and remitted pursuant to paragraph 153(1)(a), it is necessary to determine the nature of the income in question.
Whether a person receives payments as an individual or as a representative of a corporation is a question of fact. It is our understanding that, generally, individuals serving on a professional association's council or committee will be individuals who are registered to practice the profession or individuals who are otherwise eligible to serve in that office. Such individuals are usually elected or otherwise appointed to council or committee positions by the professional association.
Consequently, when a council or committee participant who is a member of a professional association is paid fees for serving on the professional association's council or committees, he or she is receiving those fees in his or her capacity as an individual. Paragraph 6(1)(c) of the Act provides that director's or other fees from an office shall be included in income from an office or employment. Therefore, such fees are income that is "salary, wages or other remuneration". Paragraph 153(1)(a) of the Act and Part I of the Income Tax Regulations require the payor to withhold income tax on behalf of the individual and to report the amounts on a T4 information slip.
Notwithstanding our comments in our letter 2007-0246031E5, it is our view that the treatment accorded to director's fees in that letter, which is in line with the treatment described above, is not an administrative departure; rather, it is the technically correct position based on the Act. In other words, unless the individual receiving the fees is doing so on behalf of the corporation and not in a personal capacity, the payor is required to withhold and remit income tax and report the amounts on a T4 slip.
We trust our comments will be of assistance.
Terry Young, CPA, CA
Manager, Administrative Law Section
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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