John Loukidelis of Simpson Wigle LLP has written a helpful post discussing the distinction between the taxation of fees charged by an executor or administrator who is in the business of providing such services, and the taxation of fees earned by those who are not in the business of acting as executors and administrators.
Executor fees are either income from a business or income from an office or employment. If it is income from an office or employment, the executor or administrator must comply with withholding and source deductions requirements.
In Mr. Loukidelis' words,
The Income Tax Regulations contain detailed rules on the amounts to be withheld from remuneration and the timing of the withholding. The Regulations will prescribe when and what amounts must be withheld from an executor’s compensation. An estate paying such compensation is required to obtain a payroll account number to effect the withholding. The CRA withholding guide also makes it clear that executor’s compensation, where the executor is an employee, is subject to CPP and, in certain cases, EI withholding.
An executor or administrator who fails to comply with these requirements could face penalties.
I suspect that most executors and administrators are not aware of the withholding requirements.