Any business can generally deduct reasonable salaries paid to children and family members for services rendered to it.
Such payments are normally made via cheque or bank transfer but what about non-cheque, non-cash, in kind payments to family members?
There is a Tax Court of Canada case which deals with the deductibility of non-cheque paid amounts (“in kind”) paid to family members.The taxpayer testified that he paid $7,000 to each of his 11 and 13 year old children, based on a compensation rate of $10 per hour. He said the children were paid for photocopying, stuffing and stamping envelopes for various mailings to thousands of people, among other duties. Each of the children worked over 700 hours during the year.
He did not pay his children by cheque, but instead gave them cash and also purchased personal property for them like snowmobiles and motorcycles.
TAX TIP Although the excellent conclusion in this Tax Court case is that you can pay salaries to family members “in kind” and still deduct them, we strongly urge you to make payments by cheque because CRA Canada Revenue Agency will likely challenge their deductibility and lead you to costly court proceedings. To determine whether you can pay your family members and how to go about doing this, please contact us now.
The auditor from CRA ignored the above noted compensation because there were no cheques or receipts to support the amounts paid to the children.
Fortunately, the taxpayer won this case because the Court stated that “it is clear that an amount can be paid in kind as well as in currency” and also the CRA auditor never questioned the value of the work being done by the children.
TAX TIP You can receive an official charitable donation tax receipt for non-cash donations you give like furniture or vehicles. However, CRA will deny your claim unless you make sure to receive a proper receipt with the description of the property donated and the fair market value of the non-cash gift, etc. Please contact us now for professional assistance regarding your charitable gift-giving.
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