Suppose you have a spouse or child(ren) who actively assists with your business or farm activities. In that case, you may be able to take advantage of a significant tax planning opportunity by paying a fair wage for the labour or expertise contributed. Here are a few points to help you determine whether or not this approach might be an advantage for you:
Because of the significant tax savings this arrangement can generate, it has been subject to some severe abuse in the past. As a result, there have been numerous tax court cases dealing with the deductibility of these wages. CRA is entirely OK with wages to dependants and spouses, providing the conditions are met, but we need to be careful to abide by the letter and the spirit of the Tax Act. Following are a few conditions that must be met, providing you have decided to pay wages:
Many farmers and small business owners find the thought of payroll, T4s, etc., intimidating and therefore want nothing to do with it. And we sympathize. However, the additional paperwork, forms, etc., are conditions that must be tolerated if you’re going to enjoy the benefits. We also realize that most of you likely do not have software, forms, etc., to calculate the correct deductions, file the proper forms, make the remittances on time, etc. In that regard, we can help. If you wish, we can calculate the net cheque to be issued (provided you tell us the amount of wages to be paid to each person), prepare the remittance form and instruct you on how/when/where to submit the payroll remittance, and prepare the T4(s). Contact us if you would like assistance or if you want to discuss how this opportunity might apply to your particular situation.