Can I employ my spouse or children?

In order to reduce your business or self-employment income, the general rule is that salaries paid to your spouse or common-law partner and/or children are tax deductible to your business; however, beware of this caveat: the wages must be reasonable with respect to the actual services that are provided.

A reasonable salary would be one which might be paid to an arm's length party for similar services. In English - what an unrelated employee be paid if you hired them to do the same job.

Paying your spouse/children a salary may transfer some income into a lower tax bracket and would also create RRSP contribution room (being 18% of earned income) for them. You would, however, be liable for CPP contributions on any salaries paid over $3,500 each year up to the yearly maximum, though this would allow your spouse/children to be eligible to collect CPP benefits in retirement.

As usual, any supporting documentation that can verify your claim is useful. These can include bank statements or cancelled cheques that show (regular) sums of money being paid to your spouse/child, a contract agreement detailing the service to be received and remuneration amount, and documentation showing the actual work performed.

Contact your tax specialist or Get in Touch with us for advice specific to your situation!