Principal Issues: Are executor's fees employment income?
Position: Question of fact.
Reasons: See IT 377R
XXXXXXXXXX 2006-018448 B. J. Skulski August 3, 2006
Dear XXXXXXXXXX:
This is in reply to your letter of April 27, 2006, wherein you requested an interpretation on the tax treatment of fees paid to an executor in compensation for the management of the affairs of the estate of your late aunt.
In order to clear up any confusion, your aunt's bequest to you of your uncle's personal keepsakes and jewellery constitutes an inheritance. The percentage of the capital assets of your aunt's estate you received as compensation for acting as executor and co-trustee of her estate, on the other hand, is not an inheritance, but rather it is an executor's fee.
Where an executor is a person, who does not act in that capacity in the course of carrying on a business, the fee for acting as an executor is considered to be income from the position of an "office" as defined in subsection 248(1) of the Income Tax Act. Accordingly, for the purpose of calculating income tax the Act provides in paragraph 6(1)(c) that such fees are to be included in the computation of income.
In this regard, the estate of your late aunt would be required to withhold tax and make Canada Pension Plan remittances in respect of such fees, and would need to prepare and issue you a T4 slip.
We trust that this information addresses your concerns.
Yours truly,
Phil Jolie
Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch