Directors fees paid to a person who holds a position of office may be employment income if the individual is:
- elected by popular vote or appointed
- entitled to a fixed or ascertainable stipend or remuneration
For more information, go to Elected or appointed officials.
Director's fees paid to a corporate director are employment income, whether they are paid to a non-resident for services rendered in Canada or to a Canadian resident. Report director's fees on a T4 slip.
You only pay director's fees
You have to deduct Canada Pension Plan (CPP) contributions from payments issued to board or committee members (directors) of a corporation employed in Canada. This applies to resident and non-resident directors.
For non-resident directors, deduct CPP only if the meetings or duties are done wholly in Canada. Do not deduct CPP contributions from a corporate director if the employment duties are done wholly or partly outside Canada.
Whether CPP contributions are required when there is an employment relationship between a director and a corporation will be based on the director's employment status. If in doubt, you can ask for a ruling.
To determine the CPP contributions to deduct on director's fees, prorate the basic CPP exemption over the number of times you pay the fees during the year.
Alan is the director of your corporation. He is a resident in Canada. He does not receive remuneration as an employee. You pay him a directors' fee of $4,050 every three months. Calculate the contribution in the following way:
- Prorate the basic yearly CPP exemption to get the quarterly amount: $3,500 ÷ 4 = $875
- The amount from which you deduct contributions is $3,175 ($4,050 – $875)
- The amount of CPP contributions you remit is:
Director's contribution ($3,175 × 5.10%) = $161.93
Plus: Employer's contribution $161.93
Equals: Total contributions $323.86
Do not deduct employment insurance (EI) premiums from payments to board or committee members (directors) of a corporation who are resident or non-resident of Canada.
Whether EI premiums are required when there is an employment relationship between a director and a corporation will be based on the director's employment status. If in doubt, you can ask for a ruling.
A non-resident director is not considered to be employed in Canada if they do not attend any meeting or does any other functions in Canada. Director's fees paid to a non-resident director for attending a meeting from outside Canada through electronic means, such as a teleconference, are not taxable in Canada.
If the services rendered are only partly done in Canada, the employer is responsible for apportioning that part of the annual fee paid to the non-resident director to the services done in Canada. For example, if you held ten meetings during the year and the non-resident director attended five meetings in Canada, you would deduct income tax at source on one-half of the flat annual amount paid to the non-resident director.
If you only pay directors' fees and you estimate that the total of these fees will not be more than the amount claimed on Form TD1, Personal Tax Credits Return (or the basic personal amount if a person does not file Form TD1), do not deduct income tax.
If you estimate that directors' fees will be more than the amount claimed on Form TD1, you have to deduct income tax. A non-resident director may not have claimed any amount on Form TD1. For more information, see page 2 of Form TD1.
To calculate the amount to deduct, use the monthly federal and provincial deductions tables in Sections D and E of Guide T4032, Payroll Deductions Tables and calculate as follows:
- Divide the fees by the number of months that have passed since the last payment or since the first day of the year, whichever is later.
- Using the claim code from Form TD1 and the amount determined above, find the monthly deduction and multiply it by the number of months that have passed since the last payment or since the first day of the year, whichever is later.
- If CPP contributions and/or EI premiums do not have to be deducted from the director's fees, add an extra amount to the tax shown in the tables. See, "Deducting tax from income not subject to CPP contributions or EI premiums" in Section A of the Guide T4032.
The result is the income tax to deduct from the director's fee.
You pay director's fees as well as a salary
If you pay both a salary and directors' fees, add the fees to the salary for that pay period to calculate the amount of tax to deduct.
Whether CPP contributions are required on the salary portion will be based on the employment status of the director. If you are still in doubt after analyzing the facts relating to the director's employment, you can ask for a ruling.
If you pay both a salary and director's fees to a resident or non-resident director, only deduct EI premiums from the salary portion.
Whether EI premiums are required on the salary portion will be based on the employment status of the director. If you are still in doubt after analyzing the facts relating to the director's employment, you can ask for a ruling.
Use the calculation under "Income tax" in Bonuses, retroactive pay increases or irregular amounts to determine the amount of tax to deduct for the director's fees.
Application for a waiver of tax withholding
A non-resident director of a corporation requesting a reduction of the tax withholding on employment income based on a tax treaty can send a letter with or a waiver application with supporting documents to the applicable International Waivers Centre of Expertise. To find out which center the director should send the application to, go to Where to send completed waiver and non-resident employer certification applications.
Director's fees paid to a corporation or partnership
Where an individual is acting on behalf of or representing a corporation as a director and the fees relating to these services are paid directly, or are turned over by the individual to the corporation, those fees are considered to be income of the corporation and not of the individual. This is also the case if an individual is acting on behalf of or representing a partnership.
If the fees are directly or indirectly given back to the individual for their personal benefit, the fees have to be included in that individual's income as employment income. In such a case, follow the instructions under Employment income.
Resident corporation or partnership
You do not have to deduct CPP, EI or income tax on the fees you pay a resident corporation or partnership.
Non-resident corporation or partnership
You have to deduct 15% tax on the fees you pay a non-resident corporation or partnership. Report these payments on a T4A-NR slip.
If the corporation or partnership can show the tax withholding is more than their potential tax liability in Canada, either due to treaty protection or income and expenses, they can send a letter or waiver application with supporting documents to the applicable International Waivers Centre of Expertise. To find out which centre the corporation or partnership should send the application to, go to Where to send completed waiver and non-resident employer certification applications.
For more information, see Guide RC4445, T4A-NR – Payments to Non-Residents for Services Provided in Canada and Information Circular IC75-6, Required Withholding from Amounts Paid to Non-Residents Providing Services in Canada.
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