In general, the payment of amounts for services rendered triggers some form of tax reporting and often, an obligation on the payer to withhold and remit amounts on account of tax. Payments made to trustees and executors are no different.
Trustee, executor, or liquidator fees paid to an individual who acts in the capacity of an executor in the course of a business form part of that individual’s business income. The trust or estate is obligated to report the amount paid to individual on a T4A slip which must be issued by the trust or estate by the end of February. Otherwise, the fee of $500 or more for acting as a trustee or executor is income from an office or employment which must be reported on a T4 slip which must also be issued by the trust or estate by the end of February. In either case, the estate must obtain a business number from the Canada Revenue Agency to facilitate the reporting
The individual reports these amounts as income from an office, even if he or she does not receive a T4 slip. If the trust or estate pays a fee to a non-resident of Canada for services performed in Canada, then the trust of estate must complete a T4A-NR slip on or before the end of March.
Where the individual who provides the services in Canada is either an employee or a non-resident of Canada then the trust or estate has a requirement to withhold and remit amounts. To do so, the trust or estate will have to open accounts with the Canada Revenue Agency to facilitate the tax withholding. Failure to do either may result in penalties of up to $2,500 per instance.
When you make payments for trustee and executor fees, please keep these tax obligations in mind to avoid the related penalties for a missed step.