Are Executor Fees Taxable?

If you have been named as an Executor, you are most likely a family member, friend, or trusted advisor to the deceased. It may be your first time acting as Executor or maybe you have fulfilled this role several times over the years. If this is your first time, then I hope you are not feeling too overwhelmed, but if you are you should know this is completely normal and being Executor is ALWAYS more work than expected. For this work, you are entitled to take a fee. If the Executor fee is not stipulated in the Will, it will usually be calculated based on a percentage of the value of the Estate. The fee should be reasonable given the amount of work involved and skill required. In British Columbia, the maximum fee is 5% of the gross aggregate value of the Estate. When the Will does not specify the amount, the Executor fee is subject to approval by the beneficiaries or the courts. The receipt of a fee in exchange for your time and effort is earned income.

This income will generally be considered employment income and taxable to you in the year the fees are paid (even if the work was over several years). The Estate is considered the employer and the Executor is the employee. As the employer, the Estate is responsible for the appropriate payroll deductions and T4 filing. Unless you are CPP exempt, CPP and income tax withholdings may be required on the amount of fees you take. A T4 filing is required if the fees are greater than $500 (for fees less than $500, a T4 is required only if income tax is withheld).

The filing of a T4 is not due until February 28th of the year following the year the fees are paid. For example, a T4 for fees paid in 2015 must be filed by February 28, 2016. However, the payroll remittances (CPP and income taxes) generally will need to be received by CRA on or before the 15th of the month following the month the fees are paid. So if you paid yourself fees on August 25, 2015, the payroll remittances were due on September 15, 2015.

If you are in the business of providing Executor services, the Executor fees would be considered business income. The payroll obligations as described above would not apply, but the fees would be subject to GST. For more information on GST, go to http://www.cra-arc.gc.ca/gsthst/

Our Estate team can assist you with determining what is required for income tax and GST purposes and preparing the appropriate filings.

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