DANGERS OF PAYING YOUR SPOUSE
Employees are extremely limited in the types of expenses they can deduct for tax purposes. The rules are especially tricky when it comes to deducting a salary or other fees paid to an assistant. And the tax man may take a closer look when that assistant is your spouse, partner or other family member.
Salary paid to a family member is often done to income split, especially if the employee is in a high tax bracket and wishes to redirect income to a zero- or low-income spouse. The CRA (and, ultimately, the Tax Court) takes a dim view of such planning, even if the assistant is doing legitimate work.
Take, for example, a recent case on these issues (Blott v The Queen, 2018 TCC 1). Decided in early January, it involved a Calgary market dealer who deducted $12,000 in each of 2012 and 2013 as an employment expense for salary paid to his wife.
Under the Income Tax Act, for an employee to deduct expenses it must be demonstrated that the employment contract required the employee to incur the expense. Furthermore, the employer must certify this on Form T2200.
In the case before the Tax Court, the taxpayer’s employer paid for the taxpayer to have an assistant at the office. This assistant was shared with other employees. His employer provided the taxpayer with a T2200 in which it answered “no” to the question of whether his employment contract required him to pay for an assistant.
The taxpayer testified that his wife’s responsibilities included managing and auditing receipts and expenses; reconciling the expenses against the business charge card; paying the business charge card bill; expense receipt reconciliation; trailer fee auditing and reporting; income tax preparation; preparing gift boxes for promotional purposes; preparing and mailing celebration cards; preparing gift bags for promotional purposes; delivering promotional items; hosting clients in their home; seeking new client prospects at school, their sports club and other events; and networking.