Wages for wife

Question from Chieu updated on 17th December 2014:

We currently have two investment properties in a look through company (LTC) owned fully by me. My wife is a stay-at-home mum and carries out all the property management duties like checking rents received, advertising for new tenants, property inspections, liaising with our accountant when doing tax returns and much more. The advice we have received is the LTC should make her a contracted PAYE employee and pay her market rates for the duties performed. Is this a viable option to pay her for performing duties that I would otherwise be paying a professional property management company?

Our expert Mark Withers responded:

The LTC rules contain a restriction that prevents a deduction being gained for a salary payment to a working owner where the LTC is mainly engaged in investing in land. Whilst your wife is not directly a shareholder in the LTC you and your wife are associated persons under the associated persons rules. The property held by the LTC is deemed to be held by the individual shareholder for tax purposes. The aggregation rules in the associated persons legislation essentially treat anything held by you as also being held by a person you are associated with, in this case your wife. Accordingly, I believe the company would be denied a deduction for any salary paid to your wife rendering this plan unsuitable for a LTC.

Mark Withers and his team at Withers Tsang & Co specialise in advising on property related transactions, valuation and restructure services and tax planning.

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