You can hire your spouse or other family members to work in your business provided that they provide a bona fide business related service. A reasonable tax deductible salary may be paid to them.
When you employ your spouse, certain everyday expenses become tax deductible too:
· Life insurance premiums
· Health insurance premiums
· Tuition for job related education
· Job related travel and entertainment
While your spouse will have to pay taxes on their own salary, they may be in a lower tax bracket than you are. Therefore, this will serve to equalise your incomes. In addition, your spouse may now be eligible to contribute to an RRSP, to further shelter their income.
You can hire your children or grandchildren even on a part time basis, and turn what would otherwise be non deductible allowances, gifts and expensive handouts into tax deductions for you.
Depending on their ages, the kids can perform any number of tasks including:
· Cleaning the business office
· Washing the business automobile
· Answering the phone when you are away
· Stuffing and addressing envelops
· Keeping track of inventory
· Delivering products
· Running business errands
· Entering data into a computer
For example, you can hire your two children to work in your small business and pay them each $20 per week. $10 is used for entertainment and allowances; the other $10 goes into an investment account in their names with a joint signature requirement. Your tax deduction is the amount you pay the children.
This business function is a far better lesson for your children about the realities of life, then handing them an allowance without any connection to earning a living. Further, it serves to build their self esteem as a contributing member of the family.
Note that any salary paid to your children must be declared in their own tax returns. Using this strategy, the kids are involved, having fun, learning responsibility and you are pocketing the tax savings!
You can pay them up to $7,756 per year without making deductions from their pay cheques.
Rules for Hiring Family Members
The family members must do the work for which they are paid. You can pay a family member a deductible salary provided it is not greater than what you would ordinarily pay a stranger to do the same job. The pay cannot be excessive for the work performed. Someone from outside the family must be paid at least a minimum wage, so therefore no matter how menial the job is, minimum wage is not unreasonable payment for family members. At source tax withholding is not required if the family member is paid under $6,450 per year. Salaries are treated as tax deductible wages by you as the employer and as taxable income by your family member employees. You lose the tax advantages if you pay wages to a family member who is in a higher tax bracket than you. The pay must be periodic. Pay family members by cheque at least once a month, as you would any employee. If you were to pay a year's worth of wages in the last month of the year, it would look suspicious to CRA. Do not pay by cash!
If you would like to learn more about WNBC and to receive a FREE copy of Canada’s #1 Tax Book visit our website –
www.wnbc.net.
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