One of the benefits of becoming self employedand starting your own business is the opportunity to split income by hiring family members. But treat the process of hiring and paying them in the same manner as if you were hiring and paying a stranger otherwise Canada Revenue Agency may attribute the income back to you.
This means the work was necessary to the business, actually performed by your relative and remuneration is commensurate to the work performed. There should be a formal job description and proper payroll procedures such as source deductions for CPP, EI premiums and so on. Salary paid to a family member should be deposited in their own bank account.
Evelyn Jacks says in Make Sure its Deductible(4th ed. 2010): You can arrange your familys remuneration in such a way that much of it is tax-free by maximizing opportunities to use RRSP deductions and making a point of paying at least a portion of your familys remuneration with tax-free perks.
Specifically, tax withholding at source can be reduced by completing forms TD1 and T1213 so that family members get tax refunds every two weeks instead of the year end for items such as RRSP contributions, child care expenses and so on.
Then combine this, Jacks advises, with a variety of tax-free benefits such as discounts on merchandise, subsidized meals, memberships to social/athletic clubs, moving expenses (if required by employer), premiums for private health insurance plans, attendant costs, employer-paid training and others.
Blogs & Comment
Splitting income through a business
By Larry MacDonald
One of the benefits of becoming self employedand starting your own business is the opportunity to split income by hiring family members. But treat the process of hiring and paying them in the same manner as if you were hiring and paying a stranger otherwise Canada Revenue Agency may attribute the income back to you.
This means the work was necessary to the business, actually performed by your relative and remuneration is commensurate to the work performed. There should be a formal job description and proper payroll procedures such as source deductions for CPP, EI premiums and so on. Salary paid to a family member should be deposited in their own bank account.
Evelyn Jacks says in Make Sure its Deductible(4th ed. 2010): You can arrange your familys remuneration in such a way that much of it is tax-free by maximizing opportunities to use RRSP deductions and making a point of paying at least a portion of your familys remuneration with tax-free perks.
Specifically, tax withholding at source can be reduced by completing forms TD1 and T1213 so that family members get tax refunds every two weeks instead of the year end for items such as RRSP contributions, child care expenses and so on.
Then combine this, Jacks advises, with a variety of tax-free benefits such as discounts on merchandise, subsidized meals, memberships to social/athletic clubs, moving expenses (if required by employer), premiums for private health insurance plans, attendant costs, employer-paid training and others.