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Income tax — wages of family members were deductible

My client, a family-owned manufacturing company located in a small village, was audited by the CRA. The auditor proposed to disallow some $600,000 of wages paid to the owner's wife and daughter-in-law over several years, as not being justifiable business expenses.

I reviewed the facts with the company's owner, and presented a detailed case to the auditor, showing the specific duties and tasks that his wife had performed for the company, which included strategic planning, attending meetings and trade shows, consultation and design work, and loan guarantees.

The daughter-in-law was a health care professional. I demonstrated to the auditor that she came regularly to the factory to take care of employees' health problems, and that her fees to the company were reasonable in light of the extensive services she provided.

I backed up these claims with extensive documentary evidence, as well as supporting affidavits from numerous individuals (including several people who were not related to the owner), and case law showing that expenses such as these had been held deductible in other cases.

The auditor agreed with my submission and withdrew the proposed reassessment.

Problem vanished!

(2005)