Non-cash compensation to family members - a court ruling Aprile v. R (2005 TCC 216) explained.

Non-cash compensation to family members - a court ruling Aprile v. R (2005 TCC 216) explained.

Providing compensation to family members in forms other than cash may be considered acceptable.

Although paying salaries or wages via cheques or electronic transfers is the most simplest  and straightforward way to maintain documentation and record-keeping, a court ruling in the case of Aprile v. R (2005 TCC 216) established that compensating children by buying items such as snowmobiles, motorcycles, and gas for these vehicles can also be considered a valid form of compensation. While this method of compensation may be more complex, it can still be deemed valid.

The court ruling in Aprile v. R (2005 TCC 216) permitted non-cash compensation to family members, and I will provide further details about the case below.

The taxpayer requested a deduction for employment expenses totaling $24,000, which comprised $10,000 for wages paid to his wife and $7,000 for each of his two sons, who were aged 11 and 13.

The taxpayer testified that his sons had worked in the following capacities during the relevant taxation year:

  • Photocopying, stuffing, and stamping envelopes for five different mailings, with 10 sheets of paper per envelope, for over 2,500 partners, totaling 500 hours each;
  • Attending two meetings related to limited partnerships, totaling 50 hours each;
  • Moving files to storage for about six hours per month, and providing other services that exceeded 100 hours for each child.

The taxpayer determined the value of this compensation based on a rate of $10 per hour for his sons' work.

He testified that he had requested permission from his employer to hire someone else to perform the services, which was approved.

Additionally, he mentioned that he did not pay his sons through cheques but instead compensated them with snowmobiles, motorcycles, and gasoline for their vehicles, as well as cash amounting to at least $7,000.

The CRA counsel presented the T2200 - "DECLARATION OF CONDITIONS OF EMPLOYMENT" and the form included the name and social insurance number of the taxpayer and was signed by an authorized individual from his employer.

The form provided the following details:

  1. His contract required him to pay his own expenses for which he did not receive any allowance or repayment.

2.   He was not normally required to work away from his place of business.

3.   He was required to either rent an office outside of his place of business or use a part of his home for work and also pay for a substitute or assistant, but he did not have to cover the cost of supplies used directly in his work, and he did not receive reimbursement for these expenditures.

4.   He did not receive payment based on sales volume or negotiated contracts

5.   He did not have to be away from the employer's business area for a minimum of 12 hours.

The taxpayer argued that he was permitted to compensate his family members in the manner he did based on the T2200 form, and that the $10,000 paid to his wife was approved as a deduction. However, he claimed that the CRA officials did not accept his explanation of the compensation paid to his sons and demanded to see cheques or receipts. In response, the CRA cited Section 8(1)(i)(ii) of the Income Tax Act:

(1)  In computing a taxpayer’s income for a taxation year from an office or employment, there may be deducted such of the following amounts as are wholly applicable to that source or such part of the following amounts as may reasonably be regarded as applicable thereto:

(ii)  office rent, or salary to an assistant or substitute, the payment of which by the officer or employee was required by the contract of employment,

The argument presented by CRA's counsel was that the payments made to the taxpayer's sons could not be considered as deductions as there was a lack of "documents," which referred to the absence of cheques or any other form of proof of payment made to the sons.


The argument made by the CRA's counsel was that the amounts paid in kind for services to the taxpayer's sons could not be claimed as deductions. She submitted that the amount had to be paid in cash or by cheque with proof of payment.

The CRA's counsel did not question the taxpayer's testimony regarding the services performed by his sons or the assets he had provided to them in exchange for those services.

However, it is evident for the court that payment can be made in cash or kind. The credibility of the taxpayer was not in question.

Based on the unchallenged evidence presented, the court accepted that the $7,000 for each son represents the "amounts paid by the taxpayer in the year" as described in Section 8(1)(i) of the Act.

Therefore, the appeal was allowed.


COURT FILE NO.: 2004-3294(IT)I

STYLE OF CAUSE: George Aprile v. The Queen

PLACE OF HEARING: Toronto, Ontario

“Please note that the information provided in this article is of a general nature and may not be accurate for your specific situation. The information is current as of the date of posting and is not intended to provide legal advice. It's always recommended that you consult with a professional accountant and lawyer for personalized guidance and advice."