Gifting company profit to children.

Hey guys, a colleague of mine mentioned that gifting company profit to my children is a tax efficient way of accounting for company profit. I have never heard of this before, does anybody have any background?
Thanks.

sceach said:

Hey guys, a colleague of mine mentioned that gifting company profit to my children is a tax efficient way of accounting for company profit. I have never heard of this before, does anybody have any background?
Thanks.

Click to expand...

Your friend may have meant "employing" your children and putting them thru the payroll for a salary which would be taxed at a lower rate than if you paid it to yourself... which would of course be tax avoidance and wouldn't stand up to scrutiny in the event of an audit.

You can't gift money directly from your company to your children, at least not in a tax efficient way.

Can't think of any legal way to do it.

mandelbrot said:

Your friend may have meant "employing" your children and putting them thru the payroll for a salary which would be taxed at a lower rate than if you paid it to yourself... which would of course be tax avoidance and wouldn't stand up to scrutiny in the event of an audit.

You can't gift money directly from your company to your children, at least not in a tax efficient way.

Click to expand...

If the children genuinely work in the business and their salary is reasonable for that work, than it's fine and is a good way that business owners can reduce their tax bill, quite legally.

Just gifting, of course, won't reduce the parent's income tax bill and - eventually, if it reaches the CAT threshold, CAT will become payable.

However, if, for instance, the children use the gifted money to invest and earn income, that income will taxable on them, not on their parent, and if they pay tax at lower rate than their parent, income tax will be saved that way.

Greta said:

If the children genuinely work in the business and their salary is reasonable for that work, than it's fine and is a good way that business owners can reduce their tax bill, quite legally.

Click to expand...

Totally agree, however the OPs question doesn't suggest this is what is intended, and in many businesses (depending on industry) this isn't possible / plausible.

Also, in the event of a Revenue audit, it would be necessary to show the payment actually going to the child / children, not just an accounting entry appropriating a certain amount of the parents' drawings / salary...

Thanks for all the replies guys. I had never heard of it before. It's nothing to do with employing the children as they are only toddlers! Maybe they meant about gifting money into some sort of trust for the children or maybe just talking hot air!

sceach said:

Maybe they meant about gifting money into some sort of trust for the children or maybe just talking hot air!

Click to expand...

Not a runner either AFAIK - I'm thinking hot air at best, or seriously shady at worst!

I think, hot air...

sceach said:

gifting money into some sort of trust for the children

Click to expand...

I notice that this sort of thing is often suggested as a course of action in the personal finance columns of UK newspapers. It may or may not make sense in the UK but it certainly makes no sense in Ireland, as the Irish tax code penalises the use of trusts for tax planning, with minimal exceptions for incapacitated children and other deserving cases.