"Know the rules when paying family for farm work"

Farming in Canada has always been a family intensive business, even on larger incorporated farm enterprises.

Spouses in many cases are full partners in the process and chief bookkeepers for the business.

Part of normal childhood education on the farm is an ongoing list of farm chores, which can include everything from field preparation, planting, harvesting and livestock care.

The question is whether it is worthwhile to formalize these relationships by paying salaries for time worked.

The first thing to consider is your marginal tax rate.

If your income is taxed above the first tax bracket and your spouse’s tax rate is lower, paying your spouse to lower your tax rate is beneficial.

Even if it doesn’t lower your tax rate, more family income is taxed at the spouse’s lower rate.

Essentially you are splitting income, which is considered an acceptable tax strategy by the Canada Revenue Agency.

Before you place family on the payroll, however, the most important practice to put in place is a detailed record-keeping process that tracks the work-for-pay transactions.

Read more at FBC


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