Property Q&A – Can i pay my spouse?
Can I pay my spouse to look after my investment properties?
Yes and No – as like many cases of this type it comes down to whether you have the records to substantiate it was a commercial arrangement and not that of a private nature.
Two recent cases ( ) went against the taxpayer as they could not substantiate it was a commercial arrangement.
However we believe that where you can substantiate a real commercial arrangement then you can pay your spouse for property management purposes.
A Guide of factors to consider are:
1. While you have a choice between paying wages to your spouse under a traditional employer/employee relationship, it is recommended that the “appointment” be on a contract basis with the spouse obtaining an ABN and contracting their services. There is an argument that the property owner is not carrying on a business, but rather holding passive investment assets (properties) and thus can they therefore be an employer engaging an employee?
2. It is important to demonstrate that a genuine “contractual” relationship exists. Each situation is examined on a case by case basis in the totality of the “contractual” relationship.
3. Spouse’s duties should be clearly defined and, preferably, carried out in a distinct professional basis separate to routine household duties. List, in a procedures manual (or something similar that you devise), the action items that the spouse is responsible for, and have these duties that she has carried out included as part of the substantiation or support work papers behind the invoices issued to you.
4. Payment should be on commercial terms (eg award or market rates) and, if on an hourly basis, should be well documented. Perhaps using market rates for property management may the best approach, i.e. if the market pays 6% of gross rental income as a fee to manage the properties then that would be a good benchmark to base the spouses invoices/payments.
5. The payment should not vary from year to year unless there are genuine commercial reasons for doing so (eg additional properties are purchased or existing properties are sold).
6. Real invoices should be produced and money should actually change hands, make sure you have separate bank accounts, as this would normally occur in normal commercial arrangements.
7. It is strongly recommended that you enter into a formal written agreement setting out, for example, the terms and conditions of the arrangement, the amount of pay, the nature of the duties to be performed and the hours of work. You should then ensure that you are able to demonstrate that you have acted in accordance with the agreement. You could Google for a precedent document of a property management agreement, or base it on a previous document you have entered into with a property manager. We of course would recommend the services of a legal practitioner.
8. Where possible, the arrangement should be put in place at the outset..
9. You must ensure you comply with all relevant and applicable legal and tax obligations – there would be a superannuation guarantee obligation where the payment is more than $450 in any month for that month, and there may also be WorkCover Insurance obligations. These two obligations could only be avoided if the spouse formed a company to trade through, but then the additional cost of the company (click here for more info> of $990 for formation and $644 for annual company secretarial and ASIC fees on top of the need for annual financial reports @ around $1300 pa may outweigh the cost of the work cover and Superannuation. To setup a <SMSF Fund> click here to read more. For a work cover referral contact Harry Lauren from Centro Chambers Insurance Brokers and say we referred you for special attention at harry@chambersinsurancebrokers.com.au or 9489-6666.
Please note references to amounts and the law may change from time to time, users should not reply on this advice but use it as a basis for obtaining current advice from a professional, note our website terms of use below.