Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues:
Management fees. Cost + ?% of cost.
Position:
Department's view is that a management fee which does not exceed 115% of reasonable costs is deductible.
Reasons:
115% is generally reasonable.
960824
XXXXXXXXXX A.M. Brake
Attention: XXXXXXXXXX
March 25, 1996
Dear Sirs:
Re: Management Company Fees
This is in reply to your letter of March 4, 1996 asking what percentage of mark-up on cost Revenue Canada would accept as "a reasonable management fee corporate expense deduction". You have reason to believe that cost + 25% might be excessive.
In the absence of all the relevant details of a particular situation it is difficult to comment definitively on the matter which you have raised. Although Revenue Canada does not have any predetermined rates per se, we offer our general comments for your consideration.
The reasonableness of any management fee paid is a question of fact that can only be determined in light of the services actually rendered. In determining the reasonableness of a fee the following should be considered:
a)the nature of the services rendered and the time expended in performing these services; and
b)the fees which would be paid to obtain similar services from other sources.
Whether a particular management fee would be reasonable in the circumstances is a matter which is best determined by your Taxation Services Office. Nevertheless, the Department's general view is that, with certain exceptions, charges not exceeding 115% of the reasonable costs incurred by a management service corporation are deductible. Fees paid to a management service corporation should be pursuant to a written agreement between the taxpayer and the service corporation which accurately identifies the services to be supplied and the agreed amount for those services.
We trust our comments will be of assistance to you.
Yours truly,
R. Albert
for Director
Business and General Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
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