CONSIDER PAYING HIRED HELP WITH TAX-FREE DOLLARS
Originally published on May 26, 2011
A tight rural labour market has forced farmers to reach out to urban centres to meet their labour needs. So far, it’s been working.
Prairie farmers are hiring retirees, relatives and youth from the cities in record numbers to help seed and harvest their crops. These new workers are relishing the home-cooked meals, wide-open spaces and farm machine efficiencies.
Farmers looking to give their employment dollars more punch should consider paying their city employees tax-free allowances using subsection 6(6) of the Income Tax Act.
This subsection exempts reasonable allowances paid by an employer when workers are employed at either a “special work site” or a “remote work location.”
Let’s say your uncle has agreed to operate an air drill for you this spring. He’s an early riser, careful and enjoys being at the farm.
He has agreed to leave his city home on Sunday night, drive 200 kilometers and spend Sunday to Saturday at your farm. He’ll sleep in your spare bedroom, but he’s an easy guest for you and your wife.
Your uncle has made one demand: he wants to be switched off Saturday mornings so that he can return to the city to cut his grass and see his family.
If all goes well, your crop will be planted by the end of May. Your uncle realizes there will be rainy days where he will have to wait it out on the farm for conditions t o improve.
To exclude allowances from your uncle’s employment income, the following conditions must be met:
• The employee’s duties required him to be away from his principal place of residence or to be at the special work site;
• The employee had to work at a special work site where the duties performed were of a temporary nature;
• the employee kept, at another location, a self-contained domestic establishment as his principal place of residence that wasn’t rented to anyone else and was too far away to return to daily;
• the board and lodging, or the reasonable allowance for board and lodging, provided to the employee had to have been for a period of at least 36 hours, which can include time spent travelling between the employee’s principal place of residence and the special work site.
Because the above requirements are met, you and your uncle would complete Form TD4, Declaration of Exemption, Employment at Special Work Site, so that the allowance can be excluded from your uncle’s income.
Form TD4 requires the exact legal location of the farmyard and the distance between the uncle’s principal place of residence and the farmyard.
Subsection 6(6) cannot exempt unreasonable allowances. As a result, we have used government publications, guides and public employee accommodation and travel rates to support each of our allowance amounts.
Your uncle will be paid two tax-free allowances outside of the free board and lodging for his stay at the farm:
• $1,040 travel allowance for the five round trips to and from the farm for spring planting;
• $545 in check-out allowances for the four rain-filled days he spent at the farm, unable to work but still required to be available. This represents the value of four days of meals and accommodations, at a daily rate of $86.35 for meals and $50 for accommodations, because your uncle spent the four days with his sister in town.
Approximately $1,585 of tax-free allowances would be paid to your uncle at the end of May if the conditions of subsection 6(6) are met. Not too shabby.
These allowances are also fully deductible to the farm business. As well, the farm can write off at least one-third of the food bills for the spring seeding season.
Paying anything tax-free reminds me of a group tax class in Toronto where our work group, in reviewing a case study, delivered one of the only tax-free solutions. We quickly pointed out to our counterparts and the class lecturer that we believed we landed the client. He and the others had agreed.
The same applies to city labour. They will go first to the employer who delivers more employment dollars net of tax. Your wife’s charm and cooking shouldn’t be overlooked either.
Allyn Tastad, certified general accountant, is a partner in the accounting firm of Hounjet Tastad Harpham in Saskatoon at 306-653-5100, e-mail at email@example.com or website www.hth-accountants.ca. He is also involved in the family farm near Loreburn, Saskatchewan. The opinions expressed in this column are for information only.