"The wages paid to the child must be reasonable based on the nature and extent of the services provided. This means an arbitrary sum can't be paid without due consideration of the work being undertaken."
Parents needed to be aware the IRD could look into payments in this regard.
"They have the ability to deem any payment made as 'excessive' and reallocate the wages paid for tax purposes," Marshall says.
When considering whether an amount paid is excessive, the IRD will look at the nature of the services performed, the knowledge and skill required to carry out the services, the amount that an independent employer would pay for similar services, and the amount that would be paid to an arm's-length employee undertaking similar duties.
"Basically you can't simply pay children a wage from the farm account to obtain a tax advantage from income splitting or to support them through tertiary education when they are not actually performing work on the farm," Marshall says. "If farmers want to financially support their tertiary student children living away from home, they can consider making distributions from their trusts."
It is also unrealistic to claim a deduction for payments made to young children because they are unlikely to be able to perform any useful work, nor will jobs that could reasonably be considered a normal household chore be considered deductible.
Tax rules aren't the only thing which needs to be considered.
"Farming parents also need to be mindful of their obligations under the Employment Relations Act and Health and Safety legislation.
"These obligations include the provision of a written employment agreement, the payment of the minimum wage (if over 16), holiday pay and various record-keeping requirements," Marshall says.
"While they may be your children, once they are being paid for work on the family farm, they must be treated as an employee."
