12 July 2007 External T.I. 2007-0225651E5 - Executor 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: Tax consequences of a gift in lieu of fees.

Position: Taxable transaction.

Reasons: Transaction is not a gift but a barter transaction.

XXXXXXXXXX 							2007-022565

July 12, 2007

Dear Madam:

Re: Technical Interpretation Request: Executor Compensation

This is in reply to your letter dated February 21, 2007, in which you enquired about a procedure described to you in connection with an estate. Under this procedure, the beneficiaries of the estate, other than the executor, would make a gift to the executor in lieu of the compensation to which the executor would otherwise be entitled. It has been explained to you that while compensation would be required to be included in income for income tax purposes, a gift would not be included in income for income tax purposes.

You asked us to confirm that this procedure and resulting the tax outcome is acceptable to the Canada Revenue Agency, and that a "Deed of Gift" document is sufficient for our purposes.

A gift is generally defined as a voluntary transfer of property without consideration. In the scenario you have described, there is consideration in the form of services provided to the estate. As a result, the transfer of property from the beneficiaries to the executor would not be viewed as a gift but as a barter transaction.

Our position with respect to barter transactions is described in interpretation bulletin IT-490, Barter Transactions (copy enclosed). As explained in the bulletin, it is our view that barter transactions are within the purview of the Income Tax Act (the "Act"). When services are bartered by a taxpayer for other property, the value of the property received must be brought into the taxpayer's income where they are of the kind generally provided by the taxpayer in the course of earning income from, or are related to, a business or a profession carried on by the taxpayer. 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. For more information, see the enclosed copy of Interpretation Bulletin IT-377R, Director's, Executor's and Juror's Fees (Archived).

Thus, we are unable to confirm that the procedure and resulting tax outcome described to you is acceptable to the Canada Revenue Agency.

It should be noted that often an executor who is a family member or friend of the deceased will choose not to exercise his or her right to compensation. If that individual is also a beneficiary of the estate, the mere fact that the right to compensation has been waived would not in and by itself result in any portion of the bequest under the will being included in income.

Yours truly,

T. Murphy
Manager
Trusts Section
International and Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
Canada Revenue Agency

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