'Wages paid must be genuinely earned on the farm' - Revenue has new guidelines on wages paid to family members
The Revenue Commissioners have recently provided clarification on certain aspects of paying wages to family members. The main thrust of the clarification is that the wages paid must be genuinely earned on the farm.
It is common practice on many farms that the spouse and children will help out with the daily farmyard tasks and, in return, they are paid a wage which is claimed as a deduction against profits.
Under Irish tax legislation, a deduction is only available in respect of wages paid which are 'wholly and exclusively' for the purpose of the trade. For example, it is common practice for a spouse to be paid a wage for their involvement in the day-to-day running of the farm business.
Such activities may include administrative duties such as telephone answering, bookkeeping, banking, herd record maintenance, trips to merchants, vets etc. There should normally be little difficulty in justifying a deduction under the 'wholly and exclusively' test for the payment of such bona fide wages to spouses, sons or daughters for work actually undertaken.
However, if there is another purpose for the payment, then a deduction may not be available in respect of any or all of the amount paid.
Another purpose could typically be a means of diverting profits to the child in lieu of pocket money, or the farmer himself using that money for his own personal benefit.
In my experience, such situations are generally more likely to occur in the case of deductions claimed in respect of wages paid to children, as there are very few farming spouses being paid a farm wage who do not devote a considerable amount of time to the farm but this might not always be true of children.
Wholly and exclusively
The taxpayer's sole purpose for incurring the expense must have been for the purpose of their farming business. Where such a purpose is not identified, then Revenue will deem the expenditure to be non-allowable.