| 29/8/2008 |
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| Board of Special Commissioners - Cases |
| Case No. 2/51 |
Decided: 17 February, 1951 |
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Criteria for determining whether a salary in respect of services rendered is admissible as a deduction - articles 10(1) and 11(h), now 14 and 26, Income Tax Act
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Taxpayer appealed against the Commissioner's decision not to allow him a deduction in respect of the salary he had paid to his son.
The Board held that a salary is to be commensurate with the services rendered by the employed person. Therefore, when a salary is excessive and not proportionate to the services rendered it cannot be considered to have been "wholly and exclusively incurred in the production of the income" but merely a payment of a voluntary nature, at least insofar as the excess is concerned.
The criteria to be used in determining whether an expense in respect of a salary is admissible as a deduction are: (1) the recipient is to have really rendered services to the payor; (2) the salary is not higher than the going rate applicable locally; (3) the payment has been recorded in the payor's books.
The Board held that in this case the salary in question (Lm1,200) was excessive and directed a lesser amount (Lm360) to be allowed.
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