Income: Commission paid to executor of deceased estate

Is a commission paid to the taxpayer for acting as the executor of a deceased estate included in the taxpayer's assessable income?

Yes. A commission paid to the taxpayer for acting as the executor of a deceased estate is included in the taxpayer's assessable income as it is a payment within the meaning of section 15-2 of the Income Tax Assessment Act 1997 (ITAA 1997).

The taxpayer was appointed as executor and trustee under a will.

The taxpayer received an executor's commission for services they performed as executor and trustee of the deceased estate.

The taxpayer did not ask for and did not expect to receive the commission.

Section 6-5 of ITAA 1997 provides that the assessable income of an Australian resident for taxation purposes, includes income according to ordinary concepts (ordinary income) derived directly or indirectly from all sources.

Ordinary income has generally been held to include three categories: • income from rendering personal services • income from property, and • income from carrying on a business.

Paragraph 3 of Taxation Ruling IT 2639 explains that 'income from personal services' is:

income that an individual taxpayer earns predominantly as a direct reward for his or her personal efforts by, for example, the provision of services, exercise of skills or the application of labour. The inclusion of predominantly in this definition allows for the situation where personal services involve the use of some equipment, for example the drawing board of an architect.

Other characteristics of income that have evolved from case law include receipts that: • are earned • are expected • are relied upon, and • have an element of periodicity, recurrence or regularity.

The taxpayer may be said to have earned the executor's commission as it related directly to the services they performed. It is not clear, however, that the taxpayer could be said to have expected or relied upon the payment nor has the payment any element of recurrence or regularity. In these circumstances it is arguable whether the payment is income according to ordinary concepts and assessable under section 6-5 of the ITAA 1997.

However, section 6-10 of the ITAA 1997 provides that amounts that are not ordinary income but are included in assessable income by another provision, are called statutory income and are also included in assessable income.

Subsection 15-2(1) of the ITAA 1997 provides that the assessable income of a taxpayer includes the value to the taxpayer of all allowances, gratuities, compensation, benefits, bonuses and premiums provided to the taxpayer in respect of, or for or in relation directly or indirectly to, any employment of or services rendered by the taxpayer (including any service as a member of the Defence Force).

Section 15-2 of the ITAA 1997 is the rewritten provision, with equivalent meaning, of the former subsection 26(e) of the Income Tax Assessment Act 1936 (ITAA 1936) (Section 15-2 commenced operation from 14 September 2006 and subsection 26(e) ceased to have effect from the same date - Tax Laws Amendment (Repeal of Inoperative Provisions) Act 2006).

The courts have consistently indicated that paragraph 26(e) of the ITAA 1936 is not limited to employment situations and that it can apply to payments for services rendered in the absence of an employer/employee relationship (FC of T v. Cooke and Sherden 80 ATC 4140; (1980) 10 ATR 696, FC of T v. Holmes 95 ATC 4476; (1995) 31 ATR 71; and Smith v. Federal of Commissioner of Taxation (1987) 164 CLR 513; 87 ATC 4883; (1987) 19 ATR 274).

The payment here is a payment of the type covered by subsection 15-2(1) of the ITAA 1997 as it can be said to be a benefit granted in respect of the services rendered by the taxpayer as the executor of the deceased estate.

Accordingly, a commission paid to an executor or trustee of a deceased estate in respect of or for or in relation directly or indirectly to services rendered by them as executor or trustee would be included in the taxpayer's assessable income under section 6-10 of the ITAA 1997 as the commission is assessable income of the taxpayer under subsection 15-2(1) of the ITAA 1997.