Power of Attorney

How to Pay Yourself as a Power of Attorney in Ontario

Being appointed as someone’s power of attorney for property (POA) in Ontario is both an honor and a responsibility. While managing someone else’s finances and legal matters can seem daunting, it's important to recognize that as a POA, you are entitled to fair compensation for your time and effort. Many people are unsure about how to pay themselves properly, but this guide will break it down in simple terms so you don’t need a law degree just to get compensated.

What is a Power of Attorney for Property?

In Ontario, a power of attorney for property allows someone (known as the “attorney”) to manage the finances and property of another person who may be unable to do so themselves due to illness or incapacity. This involves tasks like paying bills, overseeing investments, and potentially selling property on their behalf.

It’s important to distinguish between a power of attorney for property and a power of attorney for personal care. A POA for personal care is someone appointed to make personal decisions about health, medical care, and living arrangements when an individual is unable to make those choices independently.

This role is also distinct from that of an executor. Executors step in only after someone passes away to handle the estate, including settling debts and distributing assets according to the will. A POA, on the other hand, manages the individual’s affairs while they are still alive. The same person or different people can be appointed to fulfill these roles.

Compensation for Powers of Attorney in Ontario

Handling someone else’s finances as a POA is a big responsibility, and in Ontario, POAs are generally entitled to fair compensation. However, as with most things in estate planning, there are some important details to understand before you start paying yourself for your services.

Here are the basics:

1. You Are Entitled to Compensation: Unless otherwise stated in the POA document, you are generally entitled to compensation as a POA. If the person who appointed you did not specify a fee, Ontario’s Substitute Decisions Act, 1992 provides guidelines. Typically, compensation is calculated as 3% of the funds handled, paid either periodically or in a lump sum after death, plus an annual "care and management" fee of 0.6% of the total assets you manage.
2. Family Dynamics Can Get Tricky: Money can often create tension within families. As a POA, you’re entitled to compensation, but not everyone may understand or agree. Some family members may expect you to handle the duties out of a sense of loyalty, without financial gain. To prevent misunderstandings, be upfront about your role and entitlement to compensation as specified either in the POA document or under the Substitute Decisions Act.
3. Keep Clear Records: To ensure you’re compensated fairly and legally, keeping meticulous records is essential. Document every transaction, including payments, bills, investments, and any financial decisions you make. This documentation justifies your compensation and protects you if your actions are ever questioned. Detailed record-keeping might feel tedious, but it’s invaluable in avoiding disputes later on.

Steps to Ensure Smooth Compensation as a POA

To make the process of paying yourself as a POA smoother and more efficient, consider the following steps:

1. Clarify Compensation Early On: To avoid awkward conversations, clarify compensation as early as possible in your role as POA. If the person you’re acting on behalf of is still able to make decisions, discuss how they wish to handle your compensation. If they cannot participate in this conversation, review the POA document carefully to understand what’s allowed. If there’s any ambiguity, consult a lawyer to interpret the document.
2. Automate and Delegate Where Possible: Managing someone’s finances can be time-consuming, but automation can help. Set up automatic payments for recurring bills, such as utilities and rent, to reduce your workload. You may also consider hiring a bookkeeper to handle tedious tasks, as long as the costs are reasonable and justifiable. Just remember that any costs incurred need to be documented and may impact the compensation you receive.
3. Schedule Regular Check-Ins with Professionals: Checking in with a financial advisor or lawyer regularly is a good idea. They can help you review records, make sure you’re following guidelines correctly, and provide guidance if you encounter challenging situations. These reviews can prevent issues from escalating and give you peace of mind that you’re handling the POA duties properly.

Tax Considerations for POA Compensation in Ontario

Yes, compensation received as a power of attorney is considered taxable income in Ontario. This means you need to report any amount paid to you for your POA duties on your personal income tax return, just as you would with employment income.

Additionally, you are required to prepare a T4 slip for the compensation received—treating it as if you were an employee. This requires withholding income tax and Canada Pension Plan (CPP) contributions where applicable, and remitting those deductions to the Canada Revenue Agency (CRA). You must also issue yourself a T4 slip at the end of the year. Though this may feel like extra administrative work, it’s critical to comply with tax requirements to avoid penalties.

To simplify this process, consult a tax professional or accountant who can guide you through the paperwork and ensure you’re following all regulations correctly. A little investment in professional advice can save you headaches down the road.

How to Pay Yourself as a Power of Attorney in Ontario!

Acting as a POA—Your Work Deserves Compensation

Acting as a power of attorney for property in Ontario carries a significant responsibility, but it also comes with the entitlement to fair compensation. By understanding the rules, communicating clearly with family members, and keeping organized records, you can ensure that the process runs smoothly for everyone involved. Compensation isn't just about getting paid—it's about recognizing the time, care, and effort required to manage someone else's affairs effectively. By following these guidelines and documenting every action, you can confidently fulfill your role while also being paid fairly for your work.

If you have further questions or need help navigating your responsibilities as a power of attorney, consider consulting a legal professional specializing in estate planning.