# Here's an odd question...



## Theresa (Apr 1, 2010)

I am curious about T4 income paid to a spouse by the husbands corporation. The wife received a T4 annually, and received a paycheque monthly during the year. The wife did not do any work for the company.

The paycheques were deposited (by the husband) into a joint account between the wife and the husband - and the husband only had control of the account. All expenses paid from the account were made by him and went to his expenses and the household expenses. The wife had to pay her own expenses from additional sources. 

The joint account was closed by the husband because the wife took some money out (to buy milk) and the husband accused her of stealing his money. He closed the account so that she couldn't have access ever again.
The wife began to have financial difficulties because she did not make enough money to cover her expenses (in fact, had to roll pennies in order to get money on several occassions). 

One of the finacial difficulties she is having is paying the taxes on the T4 income. Because of the T4 income, her income went up, and she had to pay taxes on the income. However, because she wasn't getting the income she could not pay the taxes. The government has now frozen her personal account to try to collect the taxes.

When the husband began issuing the paycheques it was under the arrangement that he would pay all expenses. The wife never agreed to live 'below poverty' and be accused of stealing while the husband freely spend money on whatever he wished.

There is no employee contract between the company and the wife, and there are no records of any work performed (because she didn't work for the company). Does the wife have any recourse to admend these T4's and the resulting tax owning?

Thanks
Theresa


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## MoneyGal (Apr 24, 2009)

I take it there is tax owing because the wife was bumped up a bracket and the withholdings from the corporation were not sufficient. 

CRA does not care about the financial relationships in a marriage. They care that their bill is paid and they will not negotiate on the amount (they will negotiate payment terms, however). 

CRA will garnish your bank account if required to get the outstanding amount, as well as withholding any disbursements that would otherwise be payable (i.e., a GST refund, for example).

The presence or absence of an employee contract does not affect whether income is taxable or not. If monies were paid to an employee of the corporation - whether that person actually worked for the corporation or not - tax and other withholdings are payable. Even if "the wife" repaid the funds to the corporation, the tax is still owing - unless the corporation refiles its returns and amends the T4s. 

There's a whole bunch of stuff in your post which isn't really germane to the question, like what the agreement about the standard of living is for the wife vis-a-vis the husband, etc. CRA doesn't care about any of that. 

It may be that "the wife" in this scenario should file for divorce, because legally all debts are (typically) split equally between husband and wife at that point, plus there are (typically) spousal support arrangements worked out between spouses at divorce. This would be one way to get money out of the husband!

But from what you've written, the wife took the funds that were paid to her and cashed them. Thus, she owes tax on those funds. It was her acceptance of the funds which creates the tax liability, not her assessment of whether work was actually performed, or the interspousal arrangements with her husband about who controls the money when it is paid to her. The wife could, in fact, go to a bank and set up an account to which those funds would be paid and to which her husband would have no access. 

That's the long version. Short version answer to your question is: from what you've written, no.


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## Berubeland (Sep 6, 2009)

There is a process where she can get her money "paid" for and clear up any future problems with her income taxes.

The process is called divorce. 

The dude sounds like an absolute tool.


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## OhGreatGuru (May 24, 2009)

I think you need a divorce lawyer. As MoneyGal says, you acknowledged receipt of the money by cashing the cheques. The fact that you put it in a joint account, and now your husband won't let you spend it, is not CRA's problem.

MoneyGal: Since this is so obviously a scheme by the husband to split income illegally, would CRA not audit husband and his company and conclude the income was really his? Wife would still have to pay the tax bill until it was sorted out. Of course, if it got really nasty they might go after wife too for participating in this fraud. So talking to a divorce lawyer first might be best.


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## MoneyGal (Apr 24, 2009)

In all my experience with issues like this, what I have found is that CRA cares about establishing a paper trail. What they want is to see the properly-filed remittances going from the husband's corporation to the wife. 

What you are alluding to is that income can be (legally) split by the husband paying the wife a salary for work performed by the corporation, as long as the rate paid is the same as what the corporation would pay for similar work performed by a non-arm's-length person or entity. 

But in many years of dealing with corporations employing spouses, I have *never* seen an amount challenged. However, I have always dealt with fairly conservative, law-abiding folks, and the amounts paid to non-owning spouses were always relatively low. 

This situation sounds messy but CRA doesn't give two hoots about how money is shared in households. I doubt a claim for tax avoidance would go anywhere. However, the wife (?) should feel free to report the husband, I guess.


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## andrewf (Mar 1, 2010)

Weird in the extreme. Sounds like tax avoidance to me, on the husband's part, by trying to launder money through the wife. Divorce should settle that problem--I can't even fathom why they are married in the first place.


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## Theresa (Apr 1, 2010)

Thanks for the replies.

I am asking on behalf of my daughter (the wife in this situation) because she can not do research on this without her husband tracking her online movements.

I remember reading that there has to be a salary that would be similar to one at arms length. In other words, the salary must match what he would pay someone else.

I also read that the work had to actually be performed and the salary had to actually be paid. In this case, no work was ever done and the salary was paid in name only - he did all the deposits and bank transactions.

This is from a tax accountants website:



> You can expect a tax auditor to carefully scrutinize your family member's salary for "reasonableness." To pass muster with the Canada Revenue Agency (CRA), you need to ensure the following:
> 
> A bona fide employer-employee relationship exists between the company and the family member. This is the basis for deducting a salary payment to your spouse or family member.
> 
> ...


Her husband also issued her a dividend tax slip (T5?) 2 years after he stopped issuing her T4 slips. No money changed hands, and they did not have a joint account at this point, nor was she a shareholder in his corporation. He issued her a slip to offset his own income and taxes. Shortly after issuing the slip he had his accountant add her onto the books as a shareholder. However, she has never purchased the required shares.

It is a messy situation, and yes he is a tool.

Thanks again for all your imput.

Theresa


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## Cal (Jun 17, 2009)

On one point, were she to discuss this situation with CRA, it seems as though he would also get audited, and perhaps be found to have improperly sheltered income.

However until a decision was made, she would be on the hook.

Secondly. I would recommend discussing this matter with a divorce lawyer. Not saying that she should get a divorce, but she should know where she would stand. As if she is a shoreholder, technically she has an ownership % in the business. Although a divorce with this individual does not sound like it would be the most straightforward event.

Her other option is to pay the bill, or at least work out a financial payment plan with CRA, and attempt to live happily ever after.


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## OhGreatGuru (May 24, 2009)

Trouble is, she has no money to pay the taxes because husband (a) absconded with it earlier, and (b) is now not even giving her the dividend cheques, just issuing a T5 claiming she was paid dividends.

_I am asking on behalf of my daughter (the wife in this situation) because she can not do research on this without her husband tracking her online movements._

Enough said. Daughter needs to see a lawyer about this controlling & conniving husband. The lawyer in turn (after she has moved out of the house) should write to CRA saying: "My client does not owe taxes on these alleged incomes because she has never received any dividends, nor did she earn the income for which her spouse' s company issued T4 slips in her name. He appears to have coerced his spouse into cashing (to an account under his control) bogus employment cheques in a scheme for which he was the financial beneficiary. I would suggest an audit of Company XYZ is in order."


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## andrewf (Mar 1, 2010)

It sounds like bizarre, unloving, abusive marriage to me. Do they live together?


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## Addy (Mar 12, 2010)

I worked in emergency services for years and have seen many cases like your daughters. I feel for her, I understand that it's easy for outsiders like us to say get a divorce, or at least go see a divorce lawyer, but it is not that easy. Lucky for your daughter she seems to have a mother looking out for her. I wish you luck and I pray your daughter gets away from that control freak asap - regardless of who pays what in taxes.


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## OhGreatGuru (May 24, 2009)

In spite of my advice to seek a divorce lawyer, nowhere in OP's comments do I see a statement that her daughter has actually asked husband to pay the tax bill. 
Has she: 
a) calculated her taxes with & without this imaginery income;
b) shown her husband the difference; and
c) asked him for a cheque to cover the difference?


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## MoneyGal (Apr 24, 2009)

Yes, but the income isn't "imaginary." The OP says the cheques were cashed into a joint account to which "only the husband had access" (except the wife took money out once, apparently causing the husband to close the account) - but household expenses were paid out of that account. 

From my reading of this situation, the wife received (or the joint account received) bona fide income, which was spent on joint (household) expenses. Now, I would never agree to a relationship where I earned money but did not control it - but that aside, it sounds as though money was paid and the wife actually benefited from the money. It doesn't sound to me like it was "imaginary" income nor that the bill is the husband's to pay. 

If an account is set up in your name, the bank will allow you access to it.


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## OhGreatGuru (May 24, 2009)

"Imaginery" was a poor choice of words. But OP said:

_The paycheques were deposited (by the husband) into a joint account between the wife and the husband - and *the husband only had control of the account*. *All expenses paid from the account were made by him and went to his expenses and the household expenses.* The wife had to pay her own expenses from additional sources.

*The joint account was closed by the husband because the wife took some money out (to buy milk) and the husband accused her of stealing his money. He closed the account so that she couldn't have access ever again.*_

Without going into the ethics involved, as a practical reality the money was placed beyond her control by her husband. The purpose of my last post was to ask if wife has pointed out to hubby that paying the taxes on that income should have been a legitimate "household expense" from that account, considering the way the money was handled.

I have also had experience with joint accounts, and found that banks would allow one account holder to deposit cheques made out to the other. So it is possible wife never even signed the cheques. And that appears to be what OP said in her original post.


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## MoneyGal (Apr 24, 2009)

OGG, I concur with what you've written. (By the way, I don't think any signature is required to deposit cheques in general, in any kind of account. I've deposited lots of cheques into my husband's business account on his behalf.) 

The whole story just seems "off" to me. It sounds like the OP wants CRA to intervene in something they are not going to intervene in...or to be released from a tax debt the person described does not feel they should have to pay. Except the whole thing is moot: debts in a marriage are considered to belong equally to both parties, and CRA will (eventually) go after the husband for the debt, even if the couple stays married. 

The OP('s daughter) should resolve the issues at the level of the marriage, not with CRA. Even if the husband's company is audited the tax debt will not go away - it will just get added to. And how could the marriage survive the wife reporting the husband to CRA? (I should stop posting about this...)


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## Cal (Jun 17, 2009)

Yes, however they decide to proceed, CRA will get paid.

I know it sounds simple, but why doesn't the husband and wife sit down and discuss the issue either together or with the husbands accountant?


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## Berubeland (Sep 6, 2009)

Dear OP,

This is a bit off topic as some of my posts can be. The guy does sound like a tool but there are also other considerations the primary one being...

SHE IS ALLOWING HIM TO DO THIS. She does have choices and is not choosing to exercise them. There is NOTHING you can do about this.

Second he may have sound reasons for his behaviour such as the daughter's profligate spending. Your daughter may not be telling the whole truth... in fact she may have spent the money and now be in hot water etc. 

We will never know the facts of the situation and you mom probably do not either. 

My advice to you mom is to back off, you cannot help her unless she CHOOSES to help herself. Keep your sanity and your money completely out of the situation. Recommend counselling. I know this is very difficult to do because she is your daughter and you love her but unless she tries to either resolve the issue or leave any effort you make to "help" her is doomed to utter frustration and inevitable failure. Help yourself.... take a step back and go get a massage or a haircut. Do something for yourself. Let them work out their own problems. Trust me when I say that your best intentioned efforts will have both of them turning against you. 

CRA is very unlikely to get involved in non-arms length transactions like these. They just don't want to. They cannot compel her to testify against him. In any case when a couple is involved there are no winners just losers on both sides. 

I have to say as well that having been involved in very abusive relationships myself in the past, it can take years before she is ready to leave. Just be there but do not interfere. Let go of the situation as much as you can.


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## Theresa (Apr 1, 2010)

Happy Easter everyone!

Leaving aside the dynamics of their relationship - since only they can work on that - my goal is to help her get her bank account unfrozen.

She has her plan all laid out on leaving and needs access to her money in order to live. She doesn't mind paying taxes if that is what it takes, but her concern is that the interest on the taxes is piling up faster than she can tackle it.

Theresa


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## Cal (Jun 17, 2009)

Does this couple have separate bank accounts? (other than the business account and the account he is putting her 'pay' into) ie: do they both have a chequing account and pay for household items separately?

As she may want to open a new account at another institution if she leaves.

If she is planning on leaving it doesn't sound like she is actively working on the relationship, perhaps they could try some sort of family counseling to help.


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## MoneyGal (Apr 24, 2009)

She can make a payment arrangement with CRA. If she truly is in financial hardship, she can request that interest cease to be added to her outstanding bill. They may go for it, and they may not - here's the relevant circular from CRA.


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## kelly7898 (May 4, 2010)

Thank you for the post.


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