An operating company (Zco) employs the spouse (Ms. Z) of its sole shareholder (Mr. Z). As the salary amount ($100,000) might be unreasonable in relation to the work performed, Zco does not deduct it in computing income. Is her salary split income to her, and would this change if Zco instead was a wholly-owned holding company of Mr. Z? CRA stated:
Split income" as defined in subsection 120.4(1) does not include remuneration paid by a corporation to a specified individual in the form of salary.
However, planning contemplating the payment of an unreasonable amount of salary, particularly in circumstances similar to those described in [this] scenario … could be considered abusive ,.. . Depending on the facts and circumstances of a specific case, in addition to section 67, the CRA could also consider the potential application of the transfer or benefit provisions to a taxpayer and the potential application of the GAAR.