Directors seek tax break

Illustration: Keri Smith

The Institute of Corporate Directors wants to change the way non-management corporate directors are paid and taxed.

In a request filed with the Finance ministry in June, the ICD says the Income Tax Act should not classify independent directors’ fees as employment income, which prohibits them from deducting work-related expenses.

“These are professional directors on boards of companies such as TD Canada Trust or BCE — it’s a huge amount of work and could be their only source of income,” says Beverly Topping, president and CEO of the ICD. “Their role is very different from that of an employee and it is unfair that they are not able to deduct these related expenses in the same way as accountants.”

Expenses that directors would deduct, if allowed, include office space, computers, phone lines or any other expense self-employed professionals can deduct.

The change would put Canada on par with the US, where non-management directors can deduct expenses. But the US is much more generous on employment expenses overall, says David Perry, senior research associate at the Canadian Tax Foundation. “Employees there are allowed to deduct expenses, but in Canada you must be self-employed to do so,” he says. “This is new territory for the Income Tax Act.”

At issue is also the perception of directors’ independence, which may be compromised by being paid as employees, says the ICD. “Treating independent directors’ fees as employment income is inconsistent with the important corporate governance role demanded from these non-management directors and is dra-matically out of step with recent legislative and regulatory initiatives,” says Bernard Wilson, chairman of the ICD and vice-chairman of PricewaterhouseCoopers. The firm provided an expert opinion on the tax treatment of directors’ fees.

At press time, the ICD was arranging a first meeting with staff at Finance to discuss its request.