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Parents can control how children spend their earnings from the family business

November 13, 2012 at 3:38 PM

In a September 6, 2012 Tax Court of Canada case, the Appellant operated a business that specialized in supplying custom window coverings and, in 2007 and 2008, deducted the amounts of $18,000 and $7,000, respectively, for wages paid to her two children (aged 15-16 and 13-14) for services that they provided to the business.

Rather than pay wages, the Appellant paid for some of the children’s extraordinary expenditures to reflect the wages.

Taxpayer wins! -partly

The Court concluded that it is likely that the expenditures have both business and personal elements.

Based on the evidence, the Court allowed a deduction for 50% of the amounts claimed.

Tax Tips & Traps 2012

Of further note in this case, the judge stated that there is nothing wrong with parents having veto over the expenditures made by their children, and the reason for limiting the tax deduction to 50% of the expenditures was the lack of sufficient records to defend the amounts claimed.