The following is a ruling from the Canada Revenue Agency.
PRINCIPAL ISSUES: An executor who does not act in the course of a business may incur expenses for the administration of an estate and the expenses may be reimbursable by the estate. Where estate is wound up before the expenses are reimbursed, can the executor claim the non-reimbursed travel, automobile or meal expenses in arriving at net income for income tax purposes?
REASONS: The fee received by an executor not acting in a business capacity is considered to be income from an office. Subsection 8(2) limits the deductions available to a taxpayer who received income from an office or employment to the deductions allowed under section 8 of the Act. Travel and motor vehicle expenses are only deductible where the taxpayer was required by a contract of employment to pay such expenses.
March 18, 2014
Re: Deduction of expenses against executor fees
This is in response to your email in which you asked us to confirm whether an executor who is not acting in the course of a business, is able to deduct out-of-pocket travel expenses incurred for the administration of an estate in arriving at net income for income tax purposes. You had noted that the estate was wound up before the expenses could be reimbursed to the executor. You suggested that an executor who may be required to make numerous trips to various locations is akin to an employee or self-employed individual who may able to deduct certain automobile and meal expenses. We apologize for the delay in responding.
This technical interpretation provides general comments about the provisions of the Income Tax Act. It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination.
The compensation and reimbursement of an executor for time expended and costs incurred in connection with the administration of an estate are questions of fact and trust/estate administration law.
A fee earned for the administration of an estate by an executor thereof will be treated for tax purposes as either income from a business or income from an office, depending on the particular circumstances of each case. Fees earned by a taxpayer for acting in the capacity of executor in the course of business form part of the business income of the taxpayer, and expenses incurred in this connection are deductible in the usual way in computing such income, to the extent they are not recoverable from the funds of the estate. Where the executor is a person who does not act in this capacity in the course of carrying on a business, the fee for acting as executor is considered to be income from an office.
Where a fee earned by an executor in respect of the administration of an estate is considered to be income from an office, the amount will be included in the executor's income under paragraph 6(1)(c) as a "director's or other fee".
Subsection 8(2) limits the expenses which may be claimed as a deduction from income from an office or employment to the deductions permitted under section 8. Generally, paragraphs 8(1)(h) and 8(1)(h.1) allow a taxpayer to deduct certain expenses, such as travel (including meals) and motor vehicle expenses, if the following conditions are met:
1. The taxpayer was ordinarily required to carry on the duties of the office or employment away from the employer's place of business or in different places;
2. The taxpayer was required under the contract of employment to pay the travel and motor vehicle expenses incurred in performing the duties of the office or employment; and
3. The taxpayer did not receive a reasonable allowance for the travel and motor vehicle expenses.
In our view, the executor's appointment to administer an estate does not typically require the executor to pay the travel or other expenses related to the administration of the estate as an estate is generally obliged to reimburse an executor's properly incurred out-of-pocket expenses. Accordingly, the second condition above cannot generally be met. Therefore, the Act does not allow for the deduction of the said expenses which would be typically recovered from an estate but in actual fact are not reimbursed before the estate is wound up.
This opinion is provided in accordance with the comments in paragraph 22 of Information Circular 70-6R5. We hope our comments will be of assistance.
Steve Fron, CPA, CA
Manager, Trusts Section II
Financial Industries and Trusts Division
Income Tax Rulings Directorate