This means that if it disallows an intercompany management fee deduction in the payor company, it will allow for an offsetting adjustment in the recipient company. However, the CRA has a policy of not taxing the same amount twice. Where the CRA disallows the deduction of management fees in one entity, the law does not require any adjustment to fees in the receiving entity, effectively resulting in double taxation. In response, the CRA often reviews the deductibility of these fees, and they have been known to send management fee questionnaires to corporations that deduct these fees as part of their review. The Canada Revenue Agency (CRA) knows that some entities have used management fees to eliminate or reduce taxes by shifting income to corporations with losses.
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