Employees are extremely limited in the types of expenses they can deduct for tax purposes and the rules are particularly tricky if you’re deducting a salary or other fees paid to an assistant.
As a recent case demonstrates, the Canada Revenue Agency may decide to take a closer look at your employment expense deduction when the “assistant” you happen to hire is your spouse, partner or other family member.
Salary paid by an employee to a family member is often done to split income, especially if the employee is in a relatively high tax bracket and wishes to redirect some of their income to a zero- or low-income spouse or family member.
But when discovered, the CRA often challenges such planning, and asks the employee to prove the amounts paid to their relative were “reasonable” given the hours (allegedly) worked by that relative, and that the amounts were actually paid to that individual.
Both issues were at the centre of the recent case involving a Greater Toronto Area car dealership manager who claimed employment expenses of $55,945 in 2015 and $50,793 in 2016 against approximately $110,000 of annual employment earnings.
Those expenses consisted of $24,000 in assistant’s salary paid to a family member for each of 2015 and 2016, and motor vehicle expenses (leasing, parking, fuel and insurance) of $29,000 in 2015 and nearly $27,000 in 2016. He also wrote off “office supplies” consisting of an Apple Watch and an...
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