Of course, the parents are taking a risk here–if the kids get tired of waiting for them to die, three of them can band together, oust the board, fire Mom and Dad, and step into the inheritance early.
I’ve skipped down to the bottom after reading post #4 to give the following anecdote:
I knew a family that, circa 1985-1990, had a barely-legit catering business in place. They actually did do some catering … maybe a job every two or three months. Anyway, they used to deduct the cost of ALL their household groceries as business expenses. This same family owned some legitimate rental properties, and they used to deduct the cost of gasoline for their personal vehicles under some pretense related to running the rentals.
The OP was looking for legal answers. This would get someone is serious trouble if they were audited. Just like a business owner taking his family out to brunch and writing it off as a “business luncheon.” Sure, you might get away with it, but it is illegal.
This is trivial to get around. Any good lawyer setting up the corporation would put in a nice “golden parachute” for the parents that made it financially crippling to fire them. If the kids want to fire their parents to control the farm, they’ll have to bankrupt it (depending on how punitive the terms are) to do so.
People pay me a ton of money to give them advice on tax issues, but I will give you some for free–your dad is absolutely full of shit.
He’s probably read some Robert Kiyosaki books (eg, Rich Dad Poor Dad)–this is one of the many things RK gets incredibly wrong.
Or one of them could go bankrupt and some stranger would own 20% of the family assets; or an ex-wife… Or that lazy brother who lives in the basement…
The key question everyone asks is “corporate what”? If you put money into the corporation, you are basically either loaning it money or buying more shares. If you use the corporation’s car, it better be in furtherance of the company’s main business purpose (Asset holding company? How is a car relevant to that?) or as mentioned previous, it’s a taxable benefit paid as dividend.
In Canada, the rules are more convoluted; one rule is “reasonabel expectation of profit”. If the business model has no likelihood of coming out ahead in whatever enterprise it owns, then any deductions toward that goal are disallowed. So you can’t say “we’ll hold the home for 20 years, let the Smiths live in it for a dollar a year, then sell it” if the home would have to go up 150% a year to make a profit. And still, use of the home would be a benefit and assessed as income for each Smith at what the IRS (CRA in Canada) deemed a fair market rate. Better to charge a realistic but slightly low rate than to let the government set one for you.
But it still boils down to - you work at your job, collect a paycheque, pay taxes on that; then give it to the corporation. Where’s the advantage? You could consider the payment an investment, but that just reduces what tax you have to pay on what the corporation gives you. (In Canada, asset-holding corporations like real estate or investment personal corporations cannot accumulate large bank accounts just to play “income averaging”)