Section 67 of the Income Tax Act limits the deduction of an expense to an amount that is reasonable in the circumstances. Even where an outlay is otherwise deductible because it was incurred to earn income, the portion that is unreasonable can be denied. The test commonly arises with salaries paid to family members and with expenses that have a personal element.
For wages paid to a spouse or child, the practical benchmark is what the business would pay an unrelated person to do the same work. Paying a family member far above the going rate for a task invites a reassessment denying the excess. Section 67 operates separately from the tax-on-split-income rules, which apply their own, broader reasonableness analysis to amounts received from a related business.