Paying your spouse or common-law partner and/or children

Salaries paid to your spouse or common-law partner and/or children are tax deductible to your business as long as the wages are reasonable in relation to the services they have provided. As a rule, salaries are considered reasonable if they’re representative of an amount that would be paid to an arm’s-length party for similar services—in other words, comparable to what you would pay an unrelated employee to do the same job.

Tax tip: There are many advantages to paying reasonable wages to family members for actual services rendered. A key benefit is that salaries will be taxed in their hands, and probably at rates lower than your marginal tax rate.This arrangement will also allow them to make their own RRSP and CPP contributions.