Are you acting under powers of attorney for a family member or friend? Did you know that you can be paid for the work that you are doing? Did you also know that if you are paid, you must report your compensation to CRA? If you didn’t, you are not alone.
Earlier this summer I met with David (not his real name) at my law office in Ottawa, Ontario. David told me that he has been acting as attorney under his mother’s powers of attorney for a number of years. After a stroke, his mother was incapable of managing her own affairs so David had been making personal care and financial decisions for her. He wanted to ask about some issues that had recently come up, especially about his acting under the power of attorney for property.
David was particularly keen to talk about power of attorney compensation. He knew that he could take power of attorney compensation for the work he was doing for his mother. After reviewing the power of attorney document and making sure it didn’t say something different, I confirmed that he should be entitled to claim 3% of capital and revenue receipts and income disbursements annually as well as a care and management fee of 3/5 of 1% of the average annual value of the mom’s assets that he was managing.
What David didn’t know, however, was that any amount of power of attorney compensation that he took is taxable as income. He must report it to Canada Revenue Agency (CRA) when filing income tax returns. Luckily, David had kept meticulous records. With the assistance of a tax accountant, the situation could be fixed.
I explained to David that if the attorney for property isn’t in the business of providing those kinds of services (or as CRA refers to it “in the course of carrying on a business), the compensation is considered by CRA to be employment income. A payroll account would have to be opened and source deductions remitted. Also, a T4 slip and summary would need to be prepared.
If the attorney for property is “in the course of carrying on a business”, then the rules are a little different. This would be for someone like a lawyer who is acting under a power of attorney for property for a client. For a lawyer, POA compensation is considered business income, and an HST number would be required if the compensation exceeds $30,000 in four consecutive calendar quarters.
If you, like David, have been paid power of attorney compensation and have not reported it to CRA, don’t hesitate. Make an appointment to meet with me as soon as possible. We will review your situation and what your next steps should be.
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Blog posts pre-dated December 1, 2015 were originally published under Neff Law Office Professional Corporation.