Revenue Canada Taxation
Head Office
XXXX
G. Thornley (613) 957-2101
APR 29 1988
Dear Sirs:
Re: Section 67 of the Income Tax Act
This is in reply to your letter of April 6, 1988 in which you ask if the Department has any guidelines as to the amount of wages or bonuses that may be paid to shareholders of a corporation. The corporation in question has income only from interest on corporate investments.
Our Comments
The Department's position in this matter was expressed in Question 42 of the Revenue Canada Round Table as reported in the 1981 Conference Report of the Canadian Tax Foundation. As your question is substantially the same as part 1 of question 42 we have quoted the answer to it in its entirety.
"1) No specific guidelines have been established to determine the reasonableness of salaries paid to employees-shareholders where a private company earns substantially all its income from property. The amount, if any, that is considered to be reasonable must be based on the facts of each particular case.
In general, when determining whether salaries paid to employees- shareholders are reasonable, comparisons with like services performed in the same or similar businesses are required. In making this evaluation the following information is usually obtained:
a) the duties performed by the employee and the time expended in carrying out these duties,
b) the remuneration of other employees of the same business who have similar types of responsibilities, experience, and skills,
c) the remuneration paid by other businesses of a similar size to employees who render services corresponding to those of the employee concerned."
Whether a particular salary or bonus would be reasonable in the circumstances is a matter which would best be considered by officers of a District Taxation Office. The underlying facts and information, as described above, should be provided to the District Office staff in order that they will be in a position to make this determination
We hope that our comments will assist you in this matter.
Yours truly,
for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch