Is the compensation a trustee receives for administering an Ontario estate taxable income?

Yes. Compensation paid to an estate trustee, or executor, or a trustee of a family trust for administering the estate or trust is taxable income to that person, generally treated as income from an office or employment rather than as a tax-free inheritance or gift, even where the trustee is also a beneficiary who's simply being paid for the work they did. The estate or trust may also have withholding and reporting obligations when it pays that compensation, similar to paying any other form of employment-type income.

This surprises some family members who take on the executor role expecting it to be a purely unpaid favour, or who don't realize that compensation approved by the beneficiaries or fixed by a court is taxed the same way regardless of the family relationship between the trustee and the deceased. It also matters for how much compensation to actually claim: because it's taxable, a trustee weighing whether to take a fee or waive it should factor in their own tax bracket and the paperwork involved, not just the dollar amount on paper.

Because the compensation amount, the way it's reported, and any withholding required all need to be worked out correctly, this should be confirmed with the estate's accountant before the trustee is paid.