Management Fees Between Related Corporations - Quebec

On January 25, 2017, Revenu Québec posted the following announcement on their website:

Management fees billed between related corporations qualify as operating expenses if the following conditions are met:

• The related corporations have a management agreement that they respect.
• Documentation supports that management services were actually provided, and that an amount was paid as consideration for those services.
• The management corporation has the human and material resources required to provide the management services or obtains the services otherwise.
• The amount charged is reasonable in the circumstances and does not exceed the fair market value of the services provided. We consider a maximum of 15% of the fees paid for the services to be reasonable, depending on the circumstances.
• The explanations provided by the corporations and documentary and factual evidence all support that the management corporation exists and that the services were provided.

As a rule, if management fees are denied as operating expenses for one corporation, we will not subtract an amount equal to the fees from the income of the related corporation that provided the management services.

What this means, essentially, is that Quebec will double-tax amounts it deems not to meet these conditions.

Please consult your Crowe BGK advisor to help you examine and analyze any management fees that may run afoul of these rules.

About the Author:

Sam Lackman, CPA, CA, is a Senior Tax Manager at Crowe BGK.

Connect with him: [email protected]