Education Finance

Why You Should Pay Salary To A Family Member For Income Splitting

Why You Should Pay Salary To A Family Member For Income Splitting

Why You Should Pay Salary To A Family Member For Income Splitting

Although it could be seen as nepotism in certain corporate circles, hiring family members might be a wise financial decision for independent contractors. Whether you’re employing your kid for the summer or asking your spouse for help, keeping things “in the family” may be helpful.

The following are a few advantages of employing a member of your family tree:

Take Advantage of Income Splitting

In Canada, there aren’t many other options for income splitting. You may potentially be able to lower your tax burden if your spouse or another family member works for your company and is in a lower tax bracket (as long as you abide by the arm’s-length rules).

Maximize RRSP contributions

Even if the money earned through your child’s summer employment is not enough to make a sizable RRSP contribution, they are still building up RRSP contribution space that they may utilize in the future. Similar to this, if your spouse works part-time for your company while they stay at home to care for young children or pursue higher education, they can carry over their RRSP contribution room to a time when they’ve re-entered the workforce and possibly contribute more to their RRSP than they would have been able to otherwise.

CPP Eligibility

The amount and length of your CPP contributions have a bearing on certain of your retirement benefits. Family members you formally employ can start receiving CPP benefits sooner and/or continue paying into the program while they are unemployed.

Enjoy Tax deductions

There may be various tax advantages to hiring family members. First off, your business may be allowed to write off any wage payments to family members as a tax deduction. Family members may be eligible to claim non-refundable tax credits like tuition and contribution credits depending on the amount of income they make. Family members who will be employed full-time by the company may be eligible for the tax credit even if a summer student who earns less than the $12,069 annual basic tax credit threshold may not.

You must treat your family members as though they were at arm’s length for your job related to qualify for these perks. If they are independent contractors, be sure they provide you with a monthly invoice. If they are workers, put them on the payroll and send them paychecks regularly. Make sure they get compensation comparable to what you would give a non-relative to do the identical activity.


We believe that by employing these strategies, Canadians may be able to reduce their tax liability. The reason why we should lower our taxes is possibly the most crucial issue that we have not yet addressed. Whatever our opinions of them, governments provide everyone with essential social services. However, by lowering our families’ tax obligations, we may put more money in our wallets and achieve our family’s objectives sooner or more fully. Since what we do with the money we save is just as important as how much money we save, Canadian families should only concentrate on the first half of the financial equation—tax reduction.