Principal Issues: Clarification on the correct withholding and reporting requirements of honorarium payments to board and committee members.
Position: Honorarium payments are considered income from an office and the payer is required to withhold income tax, CPP and EI. The payer is also required to issue a T4 information slip.
Reasons: The definition of an office in 248(1) includes any office the incumbent of which is elected by popular vote or is appointed in a representative capacity. In this case the board and committee members are either elected or appointed.
XXXXXXXXXX 2011-040674 A. Townsend June 28, 2011
Dear XXXXXXXXXX :
Re: Honorariums
XXXXXXXXXX of the Canada Revenue Agency ("CRA"), has asked me to respond to your email of May 16, 2011. You have requested clarification on whether income tax and Canada Pension Plan ("CPP") and Employment Insurance ("EI") premiums should be withheld at source from honorarium payments made to board and committee members. In addition, you are asking whether honorariums can be paid to the professional corporations of physicians that serve on XXXXXXXXXX Health Committees or to the corporations of other government board members that serve on various boards.
Your inquiry concerns honorarium payments made to board and committee members of three different XXXXXXXXXX public service sectors. The first sector concerns government departments that appoint individuals as board members for a set period of time. These board members are not otherwise considered to be employees but may be employees of the province in other departments. The second sector is municipal school boards that pay honorariums to elected school board trustees in accordance with the XXXXXXXXXX . These regulations provide that an amount not exceeding one-third of the total remuneration paid to a school trustee in any year shall be designated as having been paid in respect of general expenses incurred by the trustee. The third sector is XXXXXXXXXX that appoints individuals and physicians to serve on health boards and committees. The physicians are either salaried physicians, who are employees of XXXXXXXXXX , or physicians who are fee for service physicians with professional corporations.
All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act").
Generally an honorarium is considered to be a voluntary payment for professional services rendered without the normal fee. Subsection 5(1) includes in income from an office or employment salary, wages and other remuneration. In addition, paragraph 6(1)(c) includes in income from an office or employment other fees received by the taxpayer in the year by virtue of an office or employment. Subsection 248(1) defines "office" to include a position of an individual entitling the individual to a fixed or ascertainable stipend or remuneration and includes any office that the incumbent is elected by popular vote or appointed in a representative capacity. In each of the situations you have described, we are of the view that the board or committee members hold an office for purposes of the Act since they are elected or appointed in a representative capacity. Therefore, any remuneration received, including an honorarium, is required to be included in income under subsection 5(1) as income from an office, or under paragraph 6(1)(c ) as a fee received by virtue of an office.
Paragraphs 153(1)(a) and 153(1)(g) require the payer of salary, wages, fees, commissions or other amounts for services to withhold income tax from the payment as prescribed by the Income Tax Regulations (the "Regulations"). Since honorariums paid to board and committee members are considered to be fees paid for services, income tax is required to be withheld by the payer in accordance with the regulations. As noted in Guide T4001 - Employer's Guide to Payroll Deductions and Remittances, CPP and EI premiums are also required to be withheld from these payments. In addition, section 200 of the Regulations requires every person that makes a payment described in subsection 153(1) to provide an information return in prescribed form in respect of the payment. Therefore, the total amount of the honorariums paid and the amount of the withholdings are required to be reported annually on a prescribed form, which in this case is a T4 information slip.
It is the CRA's position that where a municipal act of a Province deems that a portion of the amount paid to an elected member of a municipal council is an expense allowance, up to one-third of the total amount paid is excluded from income under paragraph 81(3)(c). In your case XXXXXXXXXX of the honorarium is considered to be the expense allowance paid to the school board trustees. This amount is excluded from income and is not subject to the withholding of income tax or CPP and EI premiums. The excluded expense allowance is not included in "total Earnings before Deductions" on the T4 information slip but a notation indicating the amount should be made at the bottom of the T4 slip.
You are also asking whether the CRA will permit honorarium payments to be made to corporations on behalf of the individuals that serve on the boards or committees. It should be noted that the CRA does not have any authority with respect to whether an organization can make an honorarium payment to a corporation. Where an individual is acting on behalf of, or representing, a corporation as a director and the fees related to these services are paid directly, or are turned over by the individual to the corporation, those fees are considered to be income of the corporation and not of the individual. As such, the payer is not required to make withholdings or include the amount on a T4.
I trust the foregoing is of assistance.
Yours truly,
Randy Hewlett
Manager
for Director
Ontario Corporate Tax Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch
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