(A power of attorney is a legal document that allows individuals to appoint another person (or more than one person) to act on their behalf, should they become unable to deal with their own financial or medical affairs. The names and requirements for the different types of power of attorneys can vary depending upon an individual’s province or territory of residence. The person appointed is referred to as the “attorney” but does not need to be a lawyer.
Depending on the document, the appointed attorney may have the power to take care of the property of the individual and/or make medical decisions on the individual’s behalf. Without such delegation, the financial affairs and/or medical decisions can be delayed as family and friends approach the courts for the appropriate authorizations.
When appointed attorneys are entitled to compensation for their work under a power of attorney document, any fees received are taxable and are to be reported as income. The fee received for acting as an attorney could be business income or income from an office. In order to qualify as business income, the individuals would need to demonstrate that they are in the business of providing power of attorney services. Factors to consider would be the number of engagements, the length of the engagements, the amount of time spent on engagements, and the amount of time spent on other activities. When individuals are considered to be in the business of providing power of attorney services, business-related expenses can be deducted from gross revenue. In addition, the individuals would be entitled to report a lossto the extent expenses are greater than revenue; and, such losses would be deductible against other income reported in the year by the individual.
If the power of attorney’s compensation is considered to be income from an office, then the ability to deduct expenses is limited to those expenses that an employee could deduct. Of particular interest is the fact that the person paying the compensation to the individuals in their capacity as an ‘attorney’ is responsible for reporting the amounts paid (using form T4A or T4) and ensuring the appropriate withholding is made on the payment if the compensation is considered to be income from an office.
(Reprinted from Comment, 351, wih Permission from The Institute, 10 Lower Spadina Ave suite 600 Toronto, ON M5V 2Z2)
Depending on the document, the appointed attorney may have the power to take care of the property of the individual and/or make medical decisions on the individual’s behalf. Without such delegation, the financial affairs and/or medical decisions can be delayed as family and friends approach the courts for the appropriate authorizations.
When appointed attorneys are entitled to compensation for their work under a power of attorney document, any fees received are taxable and are to be reported as income. The fee received for acting as an attorney could be business income or income from an office. In order to qualify as business income, the individuals would need to demonstrate that they are in the business of providing power of attorney services. Factors to consider would be the number of engagements, the length of the engagements, the amount of time spent on engagements, and the amount of time spent on other activities. When individuals are considered to be in the business of providing power of attorney services, business-related expenses can be deducted from gross revenue. In addition, the individuals would be entitled to report a lossto the extent expenses are greater than revenue; and, such losses would be deductible against other income reported in the year by the individual.
If the power of attorney’s compensation is considered to be income from an office, then the ability to deduct expenses is limited to those expenses that an employee could deduct. Of particular interest is the fact that the person paying the compensation to the individuals in their capacity as an ‘attorney’ is responsible for reporting the amounts paid (using form T4A or T4) and ensuring the appropriate withholding is made on the payment if the compensation is considered to be income from an office.
(Reprinted from Comment, 351, wih Permission from The Institute, 10 Lower Spadina Ave suite 600 Toronto, ON M5V 2Z2)