Is Executor Compensation Taxable in Ontario? How Fees Are Reported

If you are an executor in Ontario, you may be entitled to be paid for the work. The next question is usually what the Canada Revenue Agency (CRA) does with that payment, and what the estate has to file when it pays you.

The short answer is that fees are generally taxable income to the person who receives them. How they are reported depends on whether you act as an executor as part of a business. This article walks through the usual treatment, the estate's own filing duties, and what to confirm with an accountant.

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.

There is an exception. If the will itself fixes the allowance, the Trustee Act provision on compensation does not apply. So a first step is to read the will for any clause about payment.

How executor fees are treated for income tax

For someone who does not act as an executor in the course of a business, executor fees 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.

Professional executors are treated differently. Fees earned by someone acting as an executor or administrator in the course of a business are business income, a fee for service, and are reported on a T4A slip rather than a T4.

Whether you fall on one side of that line is a question of facts. If you are unsure, an accountant can confirm it before any slip is issued.

What the estate must file

If the estate pays executor, liquidator or trustee fees, it must file a T4 Summary and the related T4 slips. The executor is the legal representative, and 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 T1 return: for a death from January 1 to October 31, it 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.
• If the deceased, or a 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 from January 1 to December 15, but payment is still due on the regular due date.
• T3 trust return for the estate: due no later than 90 days after the trust's tax year-end, with any balance owing due within the same 90 days.

Estate tax years and T3 filing

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

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

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 is made on Form TX19, and 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. If the deceased had a GST/HST number, a separate Form GST352 is also needed.

What to do next

• Check the will for any clause that fixes or limits payment.
• Keep a record of your time and tasks from day one.
• Ask an accountant whether your fees would be employment or business income.
• Plan for the T4 or T4A slips and the T4 Summary before the fees are paid.
• Do not distribute the estate until you have talked to a lawyer or accountant about a clearance certificate.

Tax treatment can change with the facts, such as who the beneficiaries are and how the estate is structured, so confirm the details with a lawyer or accountant.

Frequently asked questions