Consider Tax Implications When Compensating Directors : April 2022 Presentation

When paying compensation to directors for their services, companies have payment options that can provide tax benefits or in some cases, unwanted tax consequences. It is important to understand these options and their tax implications to avoid any surprises down the road. Osler's Dov Begun and Colena Der, both partners in Osler's Tax Group, shared their insights on the tax rules in their Canadian Taxation of Directors' Compensation presentation to the Institute of Corporate Directors.

Director compensation is treated as employment income and taxed only when it is received. The exception is compensation that is considered to be a salary deferral arrangement where an individual has the right in a taxation year to receive an amount after a taxation year and the main purpose for the creation or existence of the right is to postpone tax payable. In this case, the compensation may be taxed upfront even when it is not received until some later time.