16 March 2015 External T.I. 2014-0521791E5 - Estate Trustee Fees

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: (1) Are the fees earned by the estate trustee, for the administration of the estate, treated as income from an office or income from a business? (2) What are the estate's and estate trustee's obligations under the Income Tax Act (the Act)? (3) Is the estate trustee liable if the estate has insufficient resources to cover its liability under the Act?

Position: (1) Depends on the facts. (2) If the fees are treated as income from the office, the estate must withhold income tax and Canada Pension Plan contributions and prepare a T4 to report the amount as income from an office or employment. Fees earned in the course of a business form part of the business income of the taxpayer under subsection 9(1) of the Act and the estate should issue a T4A. (3) Yes, to the extent of the value of the distributed property.

Reasons: (1) The correct treatment of the estate trustee fees is to be determined by the taxpayer. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office; (2) See details in the reply. (3) Subsection 159(1) provides that the legal representative of a taxpayer is jointly liable with the taxpayer to pay any amount payable and to perform any duty or obligation under the Act.

XXXXXXXXXX
2014-052179
W. King

March 16, 2015

Dear XXXXXXXXXX:

Re: Income Tax Treatment of Fees Earned from the Administration of an Estate

This is in response to your correspondence of February 24, 2014 wherein you requested our review in respect of the income tax treatment of fees earned for the administration of an estate. You noted that you had retained funds of the estate but you were uncertain as to whether you had retained enough to cover the HST on the fee you charged to the estate.

You have provided us with a copy of an interpretation you received from the GST/HST Rulings Directorate, wherein an estate trustee's tax liability and filing obligations under the Excise Tax Act was discussed. That interpretation provided that the treatment of trustee fees for GST/HST purposes is dependent on the determination of whether the fees are income from a business or income from an office for purposes of the Income Tax Act (Canada) (the Act). You have requested our assistance in this regard.

The GST/HST response and your letter to us indicated the following:

• You are a lawyer but you do not practice as an estate executor or trustee, and
• The deceased asked you to act as the executor of her estate primarily as she trusted you and you had represented her in prior cases.

Our Comments

This technical interpretation provides general comments about the provisions of the Act and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R6, Advance Income Tax Rulings and Technical Interpretations. Where a particular transaction has already been completed, a review of the relevant facts and circumstances surrounding the situation would be required. Such review would normally be conducted by the applicable Tax Services Office during the course of an income tax audit which, if undertaken, would be carried out after the particular taxpayer has prepared and filed its income tax return for the year. Notwithstanding the foregoing, we are prepared to provide the following comments that may be of assistance.

Generally, a fee earned for the administration of an estate by an estate trustee thereof 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 estate trustee 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 estate trustee is a person who does not act in this capacity in the course of carrying on a business, the fee for acting as estate trustee is considered to be income from an office. Such a situation could exist even where the estate trustee is a lawyer if the normal practice does not include the administration of estates and the lawyer was appointed on personal grounds; for example, because he or she was a friend of the deceased. Whether the fees received by an estate trustee are considered income from a business or income from an office, for purposes of the Act, is a question of fact that must be determined in each individual case.

Information contained in the GST/HST Rulings Directorate interpretation indicated that you had previously reported and filed the estate trustee fees as "Other income" under "Part 3 – Gross business or professional income" on Form T2125, Statement of Business or Professional Activities. If this reporting of the fees you earned as an estate trustee is determined to be incorrect, an adjustment to your individual income tax return may be requested by completing Form T1-ADJ, T1 Adjustment Request. A completed Form T1-ADJ is to be sent to the Individual Client Services and Benefits Division of your tax centre as indicated on your notice of assessment.

The reporting and filing obligations of both the estate and the estate trustee in respect of the trustee fees, for purposes of the Act, are dependent on the treatment of the trustee fees as either business income or income from an office.

Where a trustee fee, earned for the administration of an estate, is treated as income from an office the estate must withhold income tax and Canada Pension Plan contributions (to the extent required by the Canada Pension Plan) and prepare a T4 to report the amount as income from an office or employment in accordance with subsection 200(1) of the Regulations. The estate must make the required income tax withholdings from an estate trustee's remuneration and remit the amount to the Receiver General, on account of the estate trustee, at the prescribed time in accordance with subsection 108(1) of the Regulations. The trustee fees are included in the income of the trustee under paragraph 6(1)(c) of the Act. An estate does not have to withhold and remit amounts of employment insurance premiums under the Employment Insurance Act. More information on payroll deductions and remittances can be found in the Canada Revenue Agency guide T4001, Employer's Guide – Payroll Deductions and Remittances at http://www.cra-arc.gc.ca/E/pub/tg/t4001/t4001-13e.pdf

The trustee fees earned in the course of business form part of the business income of the estate trustee 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 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, an estate is required to issue a T4A to the estate trustee.

It should be noted that subsection 159(1) of the Act provides that the legal representative of a taxpayer is jointly liable with the taxpayer to pay any amount payable by the taxpayer and to perform any duty or obligation imposed under the Act. The definition of a "legal representative" is contained in subsection 248(1) and contemplates persons who are acting in a fiduciary or a representative capacity. In addition, subsection 159(3) establishes that the legal representative of a taxpayer is personally liable for the payment of any amount payable by the taxpayer under the Act where the legal representative, acting in that capacity, distributes any property in his or her possession without obtaining a clearance certificate from the Minister pursuant to subsection 159(2), to the extent of the value of the property distributed.

We trust our comments will be of assistance to you.

Yours truly,

Steve Fron, CPA, CA
Manager, Trusts Section II
Financial Industries and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch