Can I pay my children or spouse a salary from my business?

The two conditions the CRA actually tests

The deduction for a family member's salary comes down to two questions: was the work real, and was the pay reasonable for that work? A teenager who genuinely answers phones, updates a website, or handles filing for a few hours a week can be paid for that work; a salary paid to a family member who does nothing for the business is not a deductible wage no matter how the paperwork is written up.

Reasonableness is judged against what the business would pay an arm's length person for the same work, not against what the owner feels comfortable paying a family member. Paying a spouse $80,000 for work that a non-family employee would be paid $30,000 to do invites the CRA to disallow the excess portion as unreasonable, even if some amount of salary for that role would have been perfectly fine.

Documentation is what survives a review

The businesses that get into trouble with family salaries are almost always the ones with no paper trail behind the deduction. A basic job description outlining what the family member actually does, timesheets or a log of hours worked, and evidence the salary was genuinely paid, such as a bank transfer rather than an entry that stays only in the books, are the minimum a business should keep.

• Treat the family member's payroll file the same way you would any other employee's, with the same TD1 forms and pay stubs.
• Keep a record of the actual work product where possible, not just the hours logged, especially for less structured tasks.
• Pay on a regular schedule rather than in occasional lump sums that are harder to tie back to specific work performed.

None of this needs to be elaborate for a part-time role, but it needs to exist. A CRA reviewer who asks what a family member actually did for $15,000 in salary wants to see something more concrete than a family relationship and a T4.

How CPP and EI apply differently to family employment

CPP contributions generally apply to a family member's employment the same way they would to any other employee, based on their actual pensionable earnings, with no special carve-out for being related to the owner. EI is different: employment between related persons is generally treated as not insurable unless the CRA is satisfied that the terms of the employment, the pay, the duties, the hours, are similar to what an arm's length employer and employee would have agreed to. In practice, this means many family employment arrangements do not have EI premiums deducted at all, though a business that wants EI coverage in place for a family employee can request a ruling to confirm insurability.

Why TOSI generally is not the issue here

Business owners sometimes worry that paying family members runs into the tax on split income rules, but TOSI is aimed at dividends and other forms of income splitting, not at reasonable salary paid for actual work performed. A genuine, reasonable salary for real services is generally treated as an excluded amount under TOSI, which is a different question from whether dividends paid to the same family member would attract TOSI. Our answer on paying a spouse dividends from your corporation covers that separate and more restrictive question.

What a family salary can do for RRSP room and TFSA funding

Paying a spouse or adult child a salary creates earned income for them, which generates RRSP contribution room they would not otherwise have if their only income came from dividends or nothing at all. That earned income also gives them their own funds to contribute to a TFSA, rather than relying on a gift from the business owner, which can matter for attribution rules depending on how the money moves.

These are genuine, useful side effects of a properly structured family salary, but they are a consequence of paying a real wage for real work, not a standalone justification for creating a salary where none is warranted. The CRA's test is still whether the work and the pay level are genuine first.

Sole proprietorships and corporations both qualify

A family salary is a deductible business expense whether the business is a sole proprietorship reporting income on a T2125 or an incorporated company deducting wages on its T2 return; the reasonableness and documentation standards apply the same way regardless of structure, a comparison we cover more broadly in our answer on how sole proprietorship and corporate taxes compare. What differs is who signs off on the arrangement: in a sole proprietorship, the owner is directly paying a family member from their own unincorporated business, while in a corporation, the payment should still flow through the corporate payroll account rather than the owner's personal funds, to keep the corporate and personal finances properly separated.

Paying minors

There is no CRA-specific minimum age for a child to be paid a wage by a family business, but Ontario's Employment Standards Act sets minimum age requirements for certain types of work, and some tasks are restricted for younger workers regardless of who the employer is. Confirm the current age and work restrictions that apply to the specific tasks a minor would perform before putting them on payroll, since these rules vary by the type of work involved rather than applying a single blanket age.

How we structure family payroll for clients

We help business owners set a defensible pay rate for a family member's role, benchmarked against what the work would cost from an arm's length hire, and we put the same documentation in place that would protect any other employee's wage deduction. Our payroll services handle family employees on the same payroll system as everyone else, so there is a clean, ordinary paper trail rather than an arrangement that looks different from how the rest of the business runs payroll.