More often than not, a tax obligation will arise for anyone carrying out the role of executor of a deceased estate when they earn a commission for this service.

By Mark Morris, Senior tax counsel at BNR Partner

Before a solicitor or any other person accepts the role of executor of a deceased estate, it’s important they recognise that any commission received for the provision of executorial services will invariably be fully assessable for income tax — and potentially subject to Goods and Services Tax (GST).

This tax liability is not limited to circumstances where a law firm regularly provides executorial services to clients in addition to the provision of legal services. It may
be triggered even when a person provides executor services in respect of a single deceased estate.

This is something of a hidden trap for executors, especially because the Australian Taxation Office (ATO) has not published any binding public rulings confirming the assessability of executor commissions for either income tax or GST purposes.

However, much practical guidance can be extracted from a number of non-binding private rulings issued by the ATO. These rulings confirm that such commissions will be treated as assessable income for income tax purposes and would also typically constitute consideration for the making of a taxable supply for GST purposes.

Let’s look at the separate but similar rationales as to why such amounts are assessed for income tax and GST.

Income tax

As a starting point it’s essential
to recognise that an executor commission may be included in assessable income as either ordinary income or statutory income for income tax purposes depending on the circumstances.

Ordinary income

Where a solicitor or other professional regularly provides services as an executor, the cost for these services will be assessed as “ordinary income” on the basis that
it constitutes income according to ordinary concepts under section 6-5 of the Income Tax Assessment Act 1997 (ITAA 1997).

Such “ordinary income” will include income from personal exertion as well as business income.

Paragraph 3 of Taxation Ruling IT 2639 states that, “income from personal exertion 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”.

Thus, whilst the provision of executor services may be ancillary to the core legal business activities carried on by a law firm, the payment of executor commissions may nonetheless constitute ordinary income being income from personal exertion.

Crucially, long-standing case law provides that an amount will only be regarded as ordinary income where it is also expected, relied upon and has an element of periodicity, recurrence or regularity.

In line with this, where a solicitor or other person regularly provides executorial services, the commissions earned may form an expected part of the ordinary income they periodically derive and rely upon. This income would be assessable under section 6-5 on the basis that it constitutes income from personal exertion.

By contrast, where a solicitor or other person provides a one-off service as an executor for a particular deceased estate, this amount would not constitute ordinary income because it would not be periodically expected or relied upon by that person.

Statutory income

Where an amount is not included in ordinary income it may nonetheless be alternatively assessed as statutory income under section 6-10 of the ITAA 1997.

Statutory income for these purposes includes, amongst other things, an amount of income assessed under section 15-2 of the ITAA 1997.

Section 15-2 provides that a taxpayer’s assessable income includes the value to a taxpayer of all allowances, gratuities, compensation, benefits, bonuses and premiums provided to the taxpayer in respect of/for/or in relation directly or indirectly to any employment or services rendered by the taxpayer.

In this context it is important to note that the courts have consistently held that such amounts of statutory income could potentially apply to the provision of services outside an employment relationship (such as in the Full Federal Court of Australia case, FCT v Cooke and Sherdan [1980] ATC 4140).

Accordingly, it is the ATO’s established view that a one- off commission received by an executor will be regarded as being an assessable benefit provided in respect of the services performed by the executor in respect of the deceased estate (ATO ID 2014/44).

Moreover, the Commissioner of Taxation has applied section 15-2
on the basis that it can apply to any person acting in the capacity of executor and is not limited to a legal or accounting practitioner providing professional services in that capacity.

For example, in the non-binding Private Ruling PBR 1051189532257 the executor commission payable to the estate of a family friend who had acted as executor was held to be assessable under section 15-2 even where the payment had been described as an ex-gratia payment when it was in substance an executor’s commission.


The supply of executorial services would also typically meet the threshold requirements of being a taxable supply for GST purposes – although in practice many executors may have practical relief from the obligation of withholding GST from such payments as they are not registered or required to be registered for GST purposes.

It should be noted that the provision of services as an executor is a taxable supply because it is not regarded as being either a GST-free or input- taxed supply.

Taxable supply

Generally, an executor’s provision of services would constitute a taxable supply as defined under section9-5 of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act 1999) where that supply is made for consideration in respect of services directly connected with an Australian resident deceased estate.

It is a key feature of section 9-5 of the GST Act 1999 that such supply must also be made in the course or furtherance of an enterprise that is carried on by the taxpayer.

The term “enterprise” is defined in section 9-20 of the GST Act 1999 to include, amongst other things, an activity or series of activities done in the form of a business or an adventure or concern in the nature of trade.

Paragraph 234 of Miscellaneous Taxation Ruling MT 2006/1 further provides that an adventure or concern in the nature of trade may essentially take the form of an isolated or one-off transaction.

Accordingly, an executor would be regarded as carrying on an enterprise under section 9-20 even where their appointment as an executor is an isolated transaction.

For example, in the non-binding Private Ruling PPR 1012201810746, a commission received by the taxpayer for acting as an executor was held to be a taxable supply arising from a one-off activity even though the taxpayer was only otherwise registered for GST purposes because that person carried on a farming business.

Accordingly, it is the ATO’s view that an entity that is registered for GST purposes will treat an executor commission as being a taxable supply even where this work is not the core business of the relevant taxpayer.

Required to be registered

Accordingly, it is critical to determine whether such an entity is registered or required to be registered for GST purposes, with this being another prerequisite that must be met for there to be a taxable supply.

This condition will be satisfied if the entity is already registered for GST purposes.

However, if the relevant entity is not already registered for GST, it is necessary to determine whether that entity will be required to be registered for GST.

Section 23-5 of the GST Act 1999 provides that a taxpayer is only required to be registered for GST purposes if that entity is carrying on an enterprise and their annual turnover meets or exceeds the prevailing GST registration turnover threshold of $75,000 for entities (other than non-profit entities).

A taxpayer’s annual turnover effectively meets the above registration turnover threshold under section 188-10(1) of the GST Act 1999 when the taxpayer’s current annual turnover or projected annual turnover meets or exceeds the above $75,000 threshold.

A taxpayer’s current annual turnover is essentially the sum of the values of all the supplies that the taxpayer has made, or is likely to make, during the current month and the preceding 11 months.

Conversely, a taxpayer’s projected annual turnover is fundamentally the sum of the values of all the supplies that the taxpayer has made, or is likely to make, during the current month and in the next 11 months.

When calculating both amounts, all input taxed supplies or supplies that are not connected with carrying on an enterprise are excluded from the annual turnover’s calculation.

Thus, where a taxpayer’s current or projected annual turnover does not meet or exceeds the $75,000 GST registration turnover threshold, the executor will not be regarded as making a taxable supply on the basis that it is not required to be registered for GST purposes.

Care should be taken in each case as to whether an entity is required to be registered — and this is a question of fact in each case.