Are Executor Fees Taxable in Ontario? T4 Slips and Reporting

Acting as an estate trustee (executor) takes real time and effort, and many people are paid for it. Once money changes hands, two questions follow: how is the fee set, and how is it taxed and reported?

This article covers the legal basis for the fee in Ontario, how the Canada Revenue Agency (CRA) treats it, and how it fits with the estate's other tax duties. Details vary with the estate, so an accountant or lawyer can confirm your situation.

How an executor's fee is set in Ontario

Under section 61(1) of 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. 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. Accounts filed with the court must include a statement of the compensation the estate trustee claims.

• If the will or other trust instrument itself fixes the allowance, section 61 does not apply.
• Where a lawyer is the trustee and has provided necessary professional services to the estate, the allowance may be increased.

How the fee is taxed: lay executors and professionals

Yes, executor fees are generally taxable in the hands of the person who receives them. How they are reported depends on who the executor is.

A family member who administers a parent's estate is usually in the first group. A trust company or someone who regularly acts as an executor as a business may be in the second. If you are unsure which applies, confirm it with an accountant before issuing a slip.

What the estate must file when it pays the fee

If the estate pays executor, liquidator or trustee fees, it must file a T4 Summary and the related T4 slips. The executor must also file all required returns for the deceased.

• The final T1 return is due April 30 of the following year for a death from January 1 to October 31, or 6 months after death for a death from November 1 to December 31.
• If the deceased or their spouse or common-law partner living with them was operating a business on the date of death, the deadline moves to June 15 of the following year for deaths January 1 to December 15. Payment is still due on the regular date.
• A T3 trust return for the estate is due no later than 90 days after the trust's tax year-end, and any balance owing is due in the same 90 days.

A graduated rate estate may have a non-calendar year-end, while other trusts generally must use December 31. An estate can be a graduated rate estate for no more than 36 months after the death.

A trust must file a T3 if its total income from all sources is more than $500. It must also file, even at $500 or less, if it makes a capital distribution to beneficiaries. These rules changed for trust tax years ending on or after December 31, 2023.

Timing, clearance certificates and personal liability

A clearance certificate confirms that the estate has paid all amounts of income tax. If the legal representative distributes assets without one and tax is owing, they are personally liable for the unpaid amounts, up to the value of the assets distributed.

The request on Form TX19 should be made only after the required returns are filed and assessed and taxes are paid or secured. It should not be sent with the returns. The CRA acknowledges the request within 45 days, and the assessment can take up to 120 days.

This is why timing of the fee matters. Fees paid by the estate feed into slips and returns that must be filed and assessed before the clearance request, so paying yourself late in the process can hold up the final distribution. If the deceased had a GST/HST number, a separate Form GST352 is also needed.

What to do next

• Check whether the will fixes the fee, or whether the fair and reasonable test applies.
• Keep accurate records of the estate's assets and transactions, since accounts filed with the court must include a statement of the compensation claimed. Talking through the amount with the beneficiaries early can also help avoid disputes.
• Work out with an accountant whether you are acting as a business or as a lay executor, so the right slip is used.
• Note the T3 deadline of 90 days after the trust's tax year-end, and confirm the filing dates for the T4 Summary and T4 slips with an accountant, since the estate must file them if it pays the fee.
• Before distributing, consider a clearance certificate, which is requested only after returns are filed and assessed and taxes are paid or secured; distributing without one can leave you personally liable if tax is owing.
• If a beneficiary disputes the fee, talk to a lawyer about a passing of accounts.

Whether to claim a fee at all is a tax and family decision. An accountant or lawyer can explain the effect for your estate before you decide.

Frequently asked questions