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Tax treatment of Family Wages

This offers a good insight into Revenue’s view and approach going forward, focussed on the tax deductibility of the expense for corporation/income tax purposes of the employer. We have summarised below the key items to take from the guidance, and stress that employers need to exercise judgement and review any case of family remuneration within their business:

The payment which is made must be a bona fide payment, incurred wholly and exclusively for the purposes of the trade, and in remuneration for duties which are actually undertaken by the individual i.e. there must be a clear role and business purpose associated with the employment of the family member, and the mere operation of PAYE will not in itself render the payments to be deductible for tax purposes.

Any case of excessive remuneration involving family members will result in an element of the payment being deemed as non-deductible for tax purposes e.g. paying an excessive hourly rate relevant to the duties undertaken when compared to the rate which would be paid in the market to employ a third party for the same employment.

Cases where it is evident that the payments are for a dual purpose will also be open to challenge e.g. an employer paying a family member in full-time education at excessive rates for weekend work. In such cases, the payment may be viewed as also serving to maintain the person at college, in which case it is not wholly and exclusively incurred for the purposes of the trade.

Return to: Tax Issue - Summer 2018