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Edited version of your private ruling
Authorisation Number: 1012557437377
Ruling
Subject: Deduction for salary paid to partner
Question
Are you entitled to claim a deduction for wages paid to your de-facto partner?
Answer
Yes.
This ruling applies for the following period
Year ended 30 June 2014
The scheme commenced on
1 July 2013
Relevant facts
You operate a small business as a sole trader.
Your de-facto spouse works for your business and they are working on a full-time basis and are involved in all aspects of office work including accounts, marketing, payroll and also provides personal assistance to you to ensure the smooth running of your business.
You consider an appropriate salary for this work is $X per annum based on vacant positions being advertised, the duties of which are comparable to the duties of your spouse.
Relevant legislative provisions
Income Tax Assessment Act 1997 section 8-1
Income Tax Assessment Act 1997 section 26-25
Reasons for decision
You can claim a deduction under section 8-1 of the Income Tax Assessment Act 1997 (ITAA 1997) for expenses to the extent they are incurred in gaining or producing your assessable income, or they are necessarily incurred in carrying on a business for the purpose of gaining or producing your assessable income.
No deduction is allowed for expenses which they are of a capital, private or domestic nature.
Subsection26-35(1) of ITAA 1997 allows you to deduct, under section 8-1 of ITAA 1997, an amount paid to a relative in certain circumstances.
Subsection26-35(1) allows you to deduct an amount for a payment you make to a related entity if the amount is considered by the Commissioner to be reasonable.
A related entity can be your de-facto spouse.
What is a reasonable salary is decided on the facts of each case, but must be seen in the light of commercially acceptable standards for the relative services performed.
The commercial standards test assumes that the amount that would be reasonable when paid for those services as performed by an outsider does not cease to be reasonable when paid to a relative performing the same service under the same or similar conditions.
As your spouse's duties and salary are comparable to those advertised vacant positions, we accept the wages are commercial and you are entitled to a deduction
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