How to pay yourself as a power of attorney in Ontario

What is a attorney for property?

In Ontario, a power of attorney for property allows someone (called the “attorney”) to manage the finances and property of someone who is still alive but may be unable to manage their affairs due to illness or incapacity. This involves tasks like paying bills, overseeing investments and selling property on behalf of someone.

In contrast, a power of attorney for personal care is someone appointed to make personal decisions about the health, medical care and living arrangements of someone who’s unable to make those choices for themselves. 

This role is also different from an executor. They steps in only after someone passes away to handle the estate, including paying off debt and outstanding bills, and distributing assets according to the will.

The key distinction is that powers of attorney manage things while a person is alive, whereas an executor takes over after death. The same person or different people can be put into place for these roles.

How much are powers of attorney compensated in Ontario?

Handling someone else’s finances as a power of attorney is a big responsibility. In Ontario POAs are generally entitled to fair compensation. But like most things in estate planning, there are a few important details to know before you start paying yourself for the care of someone else. Here are the basics:

1. You are (usually) entitled to compensation: In Ontario, if you’re acting as someone’s POA, you are generally entitled to compensation, unless otherwise stated in the POA document. The person who appointed you may have specified a fee for you, but if they have not, the Substitute Decisions Act, 1992 sets out guidelines. The usual compensation is 3% of the funds you handle (paid periodically in installments or in a lump sum at death), plus an annual “care and management” fee of 0.6% of the total assets under your management. It’s a reasonable way to acknowledge the time and effort you put into managing someone else’s finances. 
2. Family dynamics can get tricky: Let’s be honest, money can sometimes create tension, especially within families. As POA, you’re entitled to compensation, but not everyone in the family might see it that way. Some might assume you’re doing it out of the goodness of your heart, or they may feel uncomfortable with the idea of your getting paid. To avoid misunderstandings, it’s always best to be transparent about your role and the fact that you’re entitled to fair compensation either under the POA document or under the Substitute Decisions Act, 1992. 
3. You must keep clear records: To ensure you’re compensated fairly—and legally—keeping meticulous records. Every penny that goes in or out of the person’s accounts should be documented. You’ll need to track everything and and back it up. That means payments, bills, investments and all decisions you make regarding their finances. It not only justifies your compensation but also protects you if questions arise down the line. Trust me, you’ll thank yourself later for doing this.

How are POA compensated in Ontario? 

Now that you know the basics of power of attorney compensation, let’s look at how to make the process smooth and efficient. 

1. Clarify compensation early on: To avoid awkward conversations later, disclose the compensation early in your role as POA. If the person you’re acting on behalf of is able to make decisions, discuss how they want compensation handled. If they’re not able to have this conversation, review the POA document to ensure you understand what’s allowed. When in doubt, consult a lawyer to interpret any clauses that appear vague to you.
2. Automate and delegate tasks where possible: Managing someone’s finances can be time-consuming, but there are ways to streamline things. Set up automatic payments for recurring bills, such as utilities and rent, to reduce your workload. You might also consider hiring a professional, such as a bookkeeper, to help you with any tedious tasks. Just be sure any costs incurred for outsourcing POA tasks are reasonable and justifiable, especially if you plan to include them in your compensation calculations.
3. Schedule regular check-ins with a professional: It’s always a good idea to check with a financial advisor or lawyer on a regular basis to ensure you’re on track with everything. They can review your records, make sure you’re following the compensation guidelines correctly and provide you with guidance if any tricky situations arise. Regular reviews like these can help prevent any issues from escalating and give you peace of mind that you’re handling the POA duties properly.

Does a POA pay income tax in Ontario? 

Yes. Any compensation you receive as a power of attorney in Ontario is considered taxable income. This means that the amount you pay yourself for your POA duties must be reported on your personal income tax return, just like any other income.

It doesn’t stop there. You’re also required to prepare a T4 slip for the compensation you receive. Yes, you’ll need to treat this income as though you were an employee being paid for your services.