Paying my spouse to do work on my IP?

[Xjas]

Something I read in this months API magazine alluded to being able to pay my spouse to do work on our IP which is owned solely in my name.

The basic plan would be to pay my wife a small fee each month for book keeping for our IP, soon to be 2 IPs both owned 100% in my name.
She already has an ABN number as she does a half day each week doing book keeping for small business and some tutoring as well.
I'd get an invoice each month from her and deposit the payment in her bank account.

Does anyone know if this possible? How would I work out a suitable price to charge, or more to the point how much could I charge before the ATO would have a hissy fit about it?



Obviously I'll be getting actual advice from my accountant but I am interest in peoples thoughts on the subject as it isn't something I'd even thought would be possible until now.

 

[depreciator]

Book keeping for a single IP? How about a couple of hours a month?

 

[Xjas]

Book keeping for a single IP? How about a couple of hours a month?

I was thinking 1 hour per month per IP, not much but it all adds up.

The list of tasks involved would be something like;

Check monthly invoice recieved from PM matches money put into bank account.
Check management charges from PM are accurate and calculated correctly.
Check any maintenance charges from PM are accurate and match any quotes provided for work.
File invoice from PM in appropriate location.
Calculate interest charges and check that correct interest has been charged to loans (both property loan and equity loan).
Pay council rates when applicable, file rates notice and payment reciept appropriately.
Pay water bill when applicable, scan water bill and forward to PM so usage can be charged to tenants.
Check water usage is charged correctly to tenants when PM statement arrives.
File water bill and payment reciept in appropriate location.
File invoices for any repairs made to property during the month, make sure any charges for repairs made to credit card match invoice.
Record and file any travel expense when necessary.
Put all charges into spread sheet for accountant to review at tax time.
Maybe bi annually check rent charged is in line with market rent for suburb(not sure about this one).
And I'm sure there are other things I cant think of.

 

[datto]

I think your wife would be hard pressed proving she is in business. This may mean you may have to treat her as an employee. This causes extra responsibilities and paperwork (eg insurance, ATO, Super,Centrelink). Just my opinion only.

 

[wylie]

Check with your accountant, but if this is possible for one IP, then why wouldn't she charge the same as a PM if she is doing the job of a PM for you?

 

[baby blue eyes]

Doubt it, looks like tax avoidance, IP level is too small,with more props maybe less of an issue, even with more props say 10 it's still an hour a month.

If she was a plumber fixing a gas leak, there is a better case for deduction claimed.

 

[Paul@PFI]

As previously mentioned there is the general anti-avoidance rule (Part IVA) which would be my primary concern. As we operate on a self assessmnet basis you remain liable to review and risk of disallowed deductions + penalty + interest.

Subject to that if she is performing her usual business role and its bookkeeping it may fly. The charge rate and time spent should be on sound principles. If you are her only client for which she provides those services it remains exposed to Part IVA. It just smells like a scheme. I dont see much "bookkeeping" involved with summarising something that agent and owner can easily do + filing some small volume of paperwork. But then a tax agent may summarise it and bill the client so provided its commercial I think it works if its all on arms length terms (rate , time spent, tax invoice, actually paid etc)

However the very nature of your question supports the notion of a scheme. Let me guess - Your marginal tax rate is higher than hers. Is this really worth the effort for $35per hour x say 2hr mth = $840. Tax saving of $125 ???

 

[Xjas]

As previously mentioned there is the general anti-avoidance rule (Part IVA) which would be my primary concern. As we operate on a self assessmnet basis you remain liable to review and risk of disallowed deductions + penalty + interest.

Subject to that if she is performing her usual business role and its bookkeeping it may fly. The charge rate and time spent should be on sound principles. If you are her only client for which she provides those services it remains exposed to Part IVA. It just smells like a scheme. I dont see much "bookkeeping" involved with summarising something that agent and owner can easily do + filing some small volume of paperwork. But then a tax agent may summarise it and bill the client so provided its commercial I think it works if its all on arms length terms (rate , time spent, tax invoice, actually paid etc)

However the very nature of your question supports the notion of a scheme. Let me guess - Your marginal tax rate is higher than hers. Is this really worth the effort for $35per hour x say 2hr mth = $840. Tax saving of $125 ???

Hi Paul, thanks for your input, the reason I started the thread was because it sounds like a scheme to me too but like I said an article in API sugggested it was possible so I though I would bring it up.

As I stated in my first post she already has an ABN number and does book keeping for another business on part time basis, and she already takes care of our IPs now, the only additional effort would be for her to print out an invoice and for me to transfer the money into here account each month, so not really a lot of extra effort.

Yes my marginal tax rate is higher than hers but how would the ATO prove that was the motivation for me paying her to do work for me or would the onus of proof be on me if they were to deny a claim? can they deny a claim because "It just smells like a scheme"?

 

[speary]

So long as you are only paying her an amount that is commensurate with the work she is doing i.e 1 or 2 hours a week and not 'paying' her $20k per year as a deliberate attempt to split income you shouldn't have any problems.

An interesting point to note is that on the House of Wealth individual investor check-list under the investment property tab, this method is noted as a tip, so people are doing it.

http://houseofwealth.com.au/resources/checklists/

 

[Rob G.]

So long as you are only paying her an amount that is commensurate with the work she is doing i.e 1 or 2 hours a week and not 'paying' her $20k per year as a deliberate attempt to split income you shouldn't have any problems.

http://houseofwealth.com.au/resources/checklists/

s. 26-35

Does not matter what you 'pay', you only deduct what is reasonable market value for what is actually done.

Is the spouse in fact an employee - withholding tax, SGC, FBT, etc.

Is the spouse conducting an enterprise to which this service is related for GST purposes ?

Is the spouse breaching financial services and tax agent services laws ?

 

[coastymike]

Yes speary. We do have it on our checklist. All the points raised by paul and rob are legitimate things to consider. We frequently have to challenge clients claims for work performed by a spouse. As in all tax matters it is something you need to discuss with your adviser. Fortunately we had an ato review about 3 years ago as house of wealth had one of the highest claims for the size of the firm. Came through with flying colours and received a nice response from the ato auditors.

 

[Xjas]

Is the spouse in fact an employee - withholding tax, SGC, FBT, etc.

Is the spouse conducting an enterprise to which this service is related for GST purposes ?

Is the spouse breaching financial services and tax agent services laws ?

In this case she would be acting as a sole trader rather than an employee, as she does with other people she works for, sole traders don't have to register for GST until their turnover is over 75000p/a AFAIK.

Hard to say if she would be breaching financial services or tax agent service laws, probably wouldnt be an issue though.