31 July 2006 External T.I. 2005-0164831E5 - withholding requirements on trustee fees

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Principal Issues: Withholding requirements (for resident and non-resident trustees) in respect of a commercial or personal trust

Position: As stated in archived IT 377R, if trustee is a professional trustee, the income is treated as income from business and no withholding required. Otherwise, the fees are taxed as income from an office and withholding is required

JURISPRUDENCE: CPP\EI Rulings has a legal opinion on CPP withholding from a n/r trustee of a trust resident in Canada

XXXXXXXXXX 						2005-016483
							Annemarie Humenuk
July 31, 2006

Dear XXXXXXXXXX:

Re: Withholding Requirements in Respect of Fees Paid to a Trustee

This is in reply to your email of December 21, 2005 concerning the withholding requirements in respect of amounts paid to a trustee for the administration of a trust, whether that trust is an income trust or a testamentary trust.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set out in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. Where the particular transactions are completed, the inquiry should be addressed to the relevant Tax Services Office. We are, however, prepared to offer the following general comments.

All statutory references in this letter are references to the provisions of the Income Tax Act, R.S.C. 1985 (5th supp.) c. 1, as amended (the "Act").

Generally, the fees earned for the administration of an estate or trust by an executor or trustee are treated either as income from a business or as income from an office. Where the taxpayer does not act in the course of carrying on a business, the trustee fees are included in income under paragraph 6(1)(c) of the Act. This is true whether the trust is an income trust, a family trust or a testamentary trust; although most commercial trusts normally engage a trustee who is carrying on a business that includes the administration of trusts. For more information, see Interpretation Bulletin IT-377R, Director's, executor's and juror's fees (Archived), which is available on our website at http://www.cra-arc.gc.ca/formspubs/prioryear/it377r/README.html.

When the fees are paid to a trustee resident in Canada who does not act in the course of carrying on a business, it is necessary to withhold income tax and Canada Pension Plan contributions (to the extent required by the Canada Pension Plan), and to prepare a T4 slip to report the amount as income from an office or employment. For more information on payroll deductions and remittances, please refer to the Canada Revenue Agency guide T4001, Employers' Guide: Payroll Deductions and Remittances which can be found on our website at www.cra-arc.gc.ca. Note that, employment insurance is not withheld from the payment of trustee fees or an executor's fee.

When a resident of Canada pays or credits a non-resident an amount in respect of fees for services rendered in Canada, including fees paid to a trustee, the fees are subject to withholding pursuant to section 105 of the Income Tax Regulations, provided that the fees are not otherwise subject to a requirement to withhold income tax. Refer to Information Circular IC 75-6R2, Required Withholding From Amounts Paid To Non-Residents Providing Services In Canada, for more information on the withholding requirements in respect of fees paid to a non-resident. No Canada Pension Plan contributions would be required pursuant to section 23 of Canada Pension Plan Regulations in respect of trustee fees payable by a trust resident in Canada provided that the non-resident trustee is considered to be in a "tenure of office". If there is any doubt about the requirement to withhold Canada Pension Plan contributions, the trustee can request a ruling by sending a letter or a completed form CPT1 available from our website at http://www.cra-arc.gc.ca/E/pbg/tf/cpt1/README.html. Such a request should be sent to the relevant tax service office.

We trust these comments are helpful.

T. Murphy
Section Manager
for Division Director
International & Trusts Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch