I have a client who’s dad passed away in 2019. She had an accountant prepare the Estate return. As Executrix she took the 5% fee. She received $10,000 in total. That accountant has told her she does not need a T4 issued for it, she can just claim it as “Other Income”. Is this correct, or does she need a T4 slip as I thought she has to have the CPP and Income Tax deducted from the $10,000. If she does need a T4, I know both the “employer and employee” portion of CPP needs to be paid but how is the tax withheld calculated?
Her father did own a business when he passed. She is not in business as a professional Executrix.
Any help is greatly appreciated.
Not surprising that the “accountant” said just declare it.
There should have been a T4 issued with CPP, possibly Tax but no EI.
You can fight the war with the “accountant” or declare it as self employed income on aT2125 and pay the CPP that way.
It is NOT Other Income
Much better if the accountant would issue a proper T4
I had a client with a similar situation a couple years ago and I reported it on Line 130. CRA did subsequently review it in some detail but eventually agreed that it was OK as it was…
@Norman is correct. T4 with CPP and (optionally) tax. Estate needs a remittance account.
And just a comment about “taking” the 5% fee. At least in BC, if reviewed by the Court, this would only be generally allowed for the most complex of estates. Any other heir could challenge the fee and likely win a reduction. Typically allowed is around 2-3%, but more often the heirs “agree to gift” out of their portions some funds to the Executor so that it is not taxable.
“As Executrix she took the 5% fee She received $10,000 in total.”
I shudder to think what the Estate accounts actually say. The correct amount and form would depend on what the Will actually says, and/or the approved estate accounts for the relevant period.
If the Executrix is not in business AT ALL, she is personally liable to have set up a payroll account on behalf of the Estate, pay the AUTHORIZED amount, deduct and remit the CPP, and file the T4 summary by due date. (S6(1)(c ) income)
So if that payment happened in 2020, she still has a few days left to file the T4/summary on time. (Although the cpp remittance, as applicable, may be late already).
(If the executrix is a gst registrant in business, then she may well be personally liable to charge, collect, and remit GST on that $10,000.00)
Hopefully the accountant did not deduct the $10,000 as a tax-deductible expense on one of the Deceased’s final/trust returns…
Regarding employment withholdings etc, see the “Trustee” section of T4001:
My understanding, when a T4 slip is not provided but should be, you would simply enter it as if a T4 slip was received. In other words enter $10,000 in box 14 on the tax program under a T4. I’ve been told that by CRA (for what that is worth…) and recall reading it somewhere. It is out of your hands if they don’t file/issue the T4 properly. If the client hasn’t maxed out I wouldn’t put it on a T2125 because then you would pay the employer and employee portion of CPP and you’re only supposed to do so if they are in the business of being an executor.
“you would simply enter it as if a T4 slip was received.”
meh - personally I would not buy into a methodology of “good/legal professional practice” being that one can just enter :“fictitious T4s” (ie not existent) into T1 tax returns.
CRA’s PRINTED AND PUBLISHED view (T4011, T4001 etc) is that:
“As the executor, you must report these fees on a T4 slip.”
The executor is legally (and personally) responsible for compliance, so the tax preparer should advise them of that, and perhaps refer them to those Cra guides.
If they don’t issue a T4, even when it is required, CRA expects you to still claim the income. I had an instance where the employer had taken advantage of an employee (was deducting source deductions and not giving the employee credit) and refused to issue a T4. Unfortunately the employee wasn’t receiving paystubs either. We reported it to CRA but they still advised to estimate the income (we based it on bank deposits) and enter is as employment income.
Advising someone they’re responsible for compliance doesn’t mean they’re going to comply.
T&Cs of being a registered Efiler include that the Efiler must verify documents they are using…
In the original posted case above, it is the taxpayer HERSELF who is under the legal duty to issue the T4. If she refuses, then she is refusing to comply with mandated procedures as an employer. Such compliance is of course entirely within her own control.
So if a taxpayer refuses to comply giving me requested documentation that they are responsible for, they are welcome to try their luck going elsewhere, and making it someone else’s problem, not mine…
(In your example, I don’t know why the employee would not have gone to the provincial employment standards branch after their FIRST weeks work to lay a complaint about the employer not issuing a payslip in the very first pay period after beginning the job, then they would at least have the payslips).
Ah that makes more sense. I misunderstood it was the client who was responsible was deciding not to. I certainly wouldn’t work with them either!
Unfortunately, not everyone is aware of their rights. The client was young and it was their first job. Sadly they didn’t know any better at the time.
I strongly agree that you shouldn’t FAKE a T4, or any other slip if you don’t have issued. But also you must report Employment income (and all types of income) under the Tax Laws.
So the question here is how to report that income? I think calling the CRA is the best option, because it’s a messy situation, and one shouldn’t assume things on their responsibility.
Please re-read my sentence above - no need to call CRA re the T1 (But maybe necessary to set up a payroll account for the estate).
The taxpayer HERSELF is under a legal obligation to issue the T4. It is entirely under her control.
The taxpayer is wearing two hats. She needs to put on her Executor hat and issue the T4 (and pay portion Cpp, if necessary). After that, she can put on her individual taxpayer hat, receive the T4, and properly file her individual taxes.
So the situation has an extremely easy and proper solution - UNLESS the taxpayer herself is deliberately refusing to comply,
Well, at least the young person has learnt something early in life, and will be on the lookout for important documentation for the rest of their career(s)!
Since the 2020 T4 filing deadline is this Monday, why can’t a T4 and T4Summary be prepared and be paper filed? Perhaps CRA can open a payroll number at the executor’s request on Monday also. I would suggest mailing the T4 Summary and T4 ExpressPost on Monday (even at a postal outlet) just to get proof that it was sent out no later than March 1, 2021.
The CPP payment (both parts) can be paid online on Monday as well. Not sure how much the executor fee is, but the CPP can’t be that much.
Sounds like this is an inexperienced executor and could use some guidance.
I didn’t know that the same person is the Employer!!
If that’s the case, I don’t understand why doesn’t she communicate the payroll to CRA, remit the deductions & issue the T4 / T4 summary. Sure she’s late& might face some penalties, but this the right way in my opinion.
@joe.justjoe1 is quite right: as the Executor, she is personally liable for ANYTHING that goes on in the Estate. In this case, given that she is on both sides of the transaction, I would open the payroll account on RAC/BRO (assuming that I have the authority to do so from the Executor) and file promptly, paying tomorrow, as the RP number will be issued instantly.
I have, in the past, filed T4/T4SUM on paper, with a blank account number and a cheque attached (before electronic anything). Haven’t needed to do that in a long time!
Reading the above brings up the following in my mind. The estate is a separate entity from its administrator or liquidator/executor. Therefore the the executor is not his own employer. In my mind, the liquidator could simply report report other employment income or directors fees. Just googled the question and found:
Deduction of expenses against exectuor fees - Thomson Group where it is recommended to report as directors fees
Hope this adds to the discussion
Technically it’s the estate that’s the employer. The executor is the employee and has the responsibility of filing the T4+T4 Summary on the behalf of the estate.
Please check my very first post in this thread.
I referred to S6(1)(c ) income.
Of course your Thomson Group quote of CRA agrees that it is T4 income, as that is exactly what the Income Tax Act says.
Note however, that since there is no such thing as a “Director of an Estate”, consequently it is not a “Director’s fee”.
Your Thomson Group CRA quote does not say it is a “Director’s Fee”… It merely quotes S6(1)(c ).
The Executor still has to do the same thing as already noted above.
“…(c ) director’s or other fees received by the taxpayer in the year in respect of, in the course of, or by virtue of an office or employment;”
(Also, legally the estate/trust is not all that “separate” for all purposes, but that path would lead us away from Canadian tax law and more into other areas of law, not suitable at all for discussion here, but rather one for Executors to discuss with their own lawyers.)
Very appropriate subject. My stepson is executor for his Grandmother’s estate. How do I or the estate create a T4 and T4 summary from the estate? Does the estate require a BN in order to do the T4’s online?
@benoit.associes1 I don’t see how the Thomson article helps: it simply confirms in essence, that, as an employee, the Executor is entitled to claim exactly what any ordinary employee is able to claim: to all intents and purposes – nothing.
They are T4 income from an office or employment and the onus is on the Estate to provide same. Certainly the individual acting as Executor CAN choose not to do so - but, as the Executor under Canadian law, if they do indeed fail to do so, and deduct and remit CPP, they are also personally responsible for same.
I have seen people report it on both T2125 and Line 130 - neither of which is technically correct, although at times CRA seems to ignore it mostly because they don’t really know the source. But that doesn’t make it “correct”.