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Part 8 Hiring family members This is part 8 of our video. Let's talk about
family. Q: What should I know about hiring family
members? A: There are few rules:
- The family members must do the work for which they are paid. Make sure the work was
necessary and you would have otherwise hired someone else.
- All the paperwork must be in place, including signed employment contracts. Keep the time
cards showing hours worked. - 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 no matter how small the job is, minimum
wage is not unreasonable payment for family members.
- You don't have to withhold taxes if the family member is paid under approximately
$11,000 per year. But you still have to make payments to the Canada Pension Plan on behalf
of your employees who are between ages 18 and 70.
-Salary is tax deductible for your business and taxable income for your family member
employee. You lose the tax advantages if you pay salary to a family member who is in a
higher tax bracket than you are. - The payments must be periodic. Pay family
members by cheque at least once a month, as you would pay any other employee. If you pay
a year's worth of wages in the last month of the year, it would NOT work.
Q: Can I pay cash? A: You can, but I wouldn't advise you to do
that. Paying cash to your employees is never a good idea, and in case of family members
it will certainly attract the CRA's attention. Q: Can I hire my kids?
A: Check the rules we just discussed. Of course many small business owners are tempted to
pay salary to minor kids. Their logic is simple - it provides easy tax savings. But guess
what - the CRA knows those tricks pretty well. Court decisions show us that the taxman will
take a very close look at all the circumstances. CRA will even go as far as to verify if money
was deposited into a bank account in trust for the child. And that child must be able
to use them for his own purposes without any further control by the payer.
This is an excellent strategy - the kids are involved, have fun, learn responsibility and
you are pocketing the tax savings! But you should use it carefully. My advice is - consult
your accountant BEFORE employing minor kids.