Tuesday, February 6, 2024

A cover is not the book** Taxation of executor’s commission

View Legal blog - A cover is not the book** Taxation of executor’s commission by Matthew Burgess

Generally, where a person acts as the executor of another’s estate, one of three approaches are adopted to financially recognise the time, energy and effort involved.

In summary, the approaches are:
  1. Reimbursement only – under this approach, all costs incurred by the executor (for example, engaging professional advisers) are reimbursed to the executor.
  2. Payment according to services performed – often, this will be calculated by reference to the number of hours spent, multiplied by an appropriate hourly rate.
  3. Commission.
The rules in relation to executor’s commission are relatively complex, largely based on case law that in some instances is hundreds of years old.

Importantly however, from a tax perspective, the Tax Office has confirmed that the payment of commission is essentially a reward for services rendered. This means that despite the fact that there is no formal employer/employee relationship, the income received by an executor must be included in their assessable income in the year it is derived and taxed at normal marginal rates.

This conclusion is explained in more detail in ATO ID2014/44.

Partly to counteract this outcome, and to provide a level of certainty as to the overall quantum of payment that is ultimately received by an executor, some will makers simply provide a specific cash gift to their executors under their will.

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** For the trainspotters, the title of today's post is riffed from Mary Poppins Returns and the song 'A cover is not the book’.

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