Management Fees Between Related Corporations
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.
Income corresponding to management fees that are denied
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.