Employing the Family

This involves the small business employing family members, e.g. the spouse or older children employed as bookkeepers, receptionists, labourers, secretaries, managers, gardeners, etc.

The Australian Taxation Office has the power under ITAA97 s26-35 to reduce the amount of the deduction claimed by the employer for salary and wages paid to a relative to an amount that the ATO considers is reasonable.

Where a family member is employed by a company we need to ensure ITAA 36 s109 concerning excessive payments is not breached.

As such, best practice is to keep records of the duties performed by the various family members in a business and ensure arms-length salaries are paid for the type of work performed.

Where children under 18 years are employed the small business needs to ensure the children are over the minimum employable age (which varies between the states).

When considering the tax savings from employing family members we need to consider whether any government assistance payments such as family tax benefit will be affected and reduced.