Are Executor Fees Taxable in Ontario? Estate Trustee Pay

If you are an executor, also called an estate trustee, you may be entitled to be paid for the work. That raises a practical question: is the money taxed, and who reports it? The answer depends on whether you are acting as a family member or friend, or as part of a business.

This article explains how executor compensation is generally reported to the CRA, where the fee comes from under Ontario law, how beneficiaries can challenge it, and how it fits with your wider tax duties as the person running the estate.

Where the right to be paid comes from

Under the Trustee Act, an estate trustee is entitled to a fair and reasonable allowance for their care, pains and trouble and time spent, as allowed by a judge of the Superior Court of Justice. The statute sets no percentage or formula. You may sometimes hear of a rule-of-thumb percentage, but it is not part of the statute, so the legal test is simply what is fair and reasonable.

The amount of compensation can be settled even when the estate is not before the court in an action. If a beneficiary objects, a judge passing the accounts may allow a fair and reasonable allowance.

Two exceptions: the will and lawyer trustees

• Fees fixed by the will: the Trustee Act allowance does not apply where the will or other trust instrument itself fixes the allowance.
• Lawyer estate trustees: where a barrister or solicitor is the trustee and has provided necessary professional services to the estate, the allowance may be increased.

If the will says something about payment, read that wording first. A lawyer can confirm how it interacts with the statute in your situation.

How executor fees are taxed and reported

For income tax, executor fees paid to someone who does not act as an executor in the course of a business are income from an office or employment. They are reported in box 14 of a T4 slip, with CPP and income tax deducted but no EI.

There is an exception for professionals. Fees earned by someone acting as an executor or administrator in the course of a business are business income, a fee for service, not employment income, and are reported on a T4A slip rather than a T4.

When the estate pays executor, liquidator or trustee fees, it must file a T4 Summary and the related T4 slips. Whether waiving a fee changes your tax position is a question for an accountant, so get advice before assuming anything.

Fees, accounts and beneficiary objections

Estate trustees must keep accurate records of the estate's assets and transactions. Accounts filed with the court must include assets at the date of death, all money received, all liabilities, and a statement of the compensation the estate trustee claims.

A beneficiary who objects to the accounts, including the compensation claimed, must serve a Notice of Objection to Accounts (Form 74.45) at least 35 days before the hearing date. If no objection is made and the required record is filed, the court may grant judgment without a hearing. Keeping a clear record of your time and tasks makes it easier to explain your claim.

Your wider CRA duties as executor

Taking fees is only one part of the job. As legal representative, you must file all required returns for the deceased, make sure any balance owing is paid before distributing the estate, and confirm that all balances owing to the CRA are resolved.

• Final return: for a death from January 1 to October 31, the return is due April 30 of the following year; for a death from November 1 to December 31, it is due 6 months after the death.
• Business exception: if the deceased, or their spouse or common-law partner living with them, was operating a business on the date of death, the filing deadline moves to June 15 of the following year for deaths January 1 to December 15, though payment is still due on the regular due date.
• Clearance certificate: if you distribute assets without one and tax is owing, you are personally liable for the unpaid amounts, up to the value of the assets distributed.

Request a clearance certificate on Form TX19 only after the required returns are filed and assessed and taxes are paid or secured, not at the same time as the returns. If the deceased had a GST/HST number, a separate Form GST352 is also needed, and for a corporation being wound up or dissolved, a clearance certificate is also required before distributing corporate property. The CRA acknowledges the request within 45 days, and the assessment can take up to 120 days. How this timing affects when you pay yourself or the beneficiaries depends on your situation, so it is worth confirming with a lawyer or accountant.

What to do next

• Check the will for any wording that fixes your compensation.
• Keep a record of your time, tasks and expenses from the start.
• Decide whether you act as an executor in the course of a business, since that affects whether a T4 or T4A is used.
• Speak with an accountant about the slips and the estate's T4 Summary.
• File the final return and any estate returns, then request a clearance certificate before distributing.
• If beneficiaries question your fee, talk with a lawyer about the passing of accounts.

Frequently asked questions