Principal Issues: Whether director's fees can be paid to a corporation where the director is in the regular employ of that corporation, and if so, what are the reporting requirements.
Position: In certain circumstances, fees earned by a director can be paid to the corporation.
XXXXXXXXXX 2007-024603
May 9, 2008
Dear XXXXXXXXXX :
Re: Director's Fees Paid to a Corporation not to an Individual
We are replying to your email, regarding the above-referenced subject. Specifically, you are enquiring as to whether fees paid to a director can be paid to a corporation, where the director is in the regular employ of that corporation, and if so, you would like to know what the reporting requirements are for tax purposes.
The tax treatment accorded the fees of a director is that they relate to services rendered in the course of, or in relation to, the position of an office as defined in subsection 248(1) of the Income Tax Act. In this respect, paragraph 6(1)(c) of the Act provides that fees earned by a director be included in computing that person's income. Moreover, paragraph 153(1)(a) requires the person paying the fees to withhold and remit income tax in accordance with the prescribed rules.
However, the Canada Revenue Agency has adopted an administrative departure from the foregoing tax treatment of directors' fees. In this respect, under certain circumstances, fees paid to a director may be regarded as income of a corporation, rather than income of the individual director. These circumstances would arise where the individual is acting on behalf of the corporation as a director, or is representing the corporation in that capacity, and the fees in respect of such services are paid directly to the corporation, or are turned over by the individual to the corporation.
Please note that this administrative accommodation is not absolute. It does not extend to corporations that have been formed for the sole purpose of receiving such fees. Nor does it extend to corporations where such fees would account for a substantial part of the corporation's income.
We trust you find this satisfactory.
Yours truly,
Bob Skulski
Manager
Insolvency and Administrative Law Section
Business and Partnerships Division
Income Tax Rulings Directorate