Revenue recently issued guidance regarding tax deductibility in remunerating family members. In the case of many SME’s it is common practice to engage children, spouses or other close relatives as employees in the business. Salaries paid for work done by family members
is an expense of the business and its tax deductibility must be considered like any other expense.
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. Where the duties are genuinely performed, the remuneration is commensurate with the work and time devoted by them and the payment is actually received by the family member, a deduction should be available in respect of sums paid to such family members. However there is a risk that where additional sums or salaries which cannot be wholly justified are paid to family members, that Revenue will disallow same as a deduction against income tax or corporation tax.
Given the recent guidance issued by Revenue, it is likely that this will continue to be an area of focus for Revenue in the coming months.