Paying Family Members From Your Corporation
A salary for real work is the one family income split the tax on split income rules never touched. Work out the defensible amount, the household saving, the payroll cost, and what happens if you pay more than the work is worth.
net saving a year
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Is the Salary Defensible
| Test | Basis | Amount |
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What the Household Actually Saves
| Item | Basis | Amount |
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Payroll Costs the Company Bears
| Cost | Basis | Amount |
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Documentation That Survives a Review
| What to Keep | Why It Matters |
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Points That Decide This
What to Do Next
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Disclaimer: Section 67 limits a deduction to an amount that is reasonable in the circumstances, and salary to a family member is deductible only to the extent it reflects what would be paid to an arm’s length person for the same work. Employment income is not split income, so the tax on split income rules in section 120.4 do not apply to it. Personal tax uses 2026 federal and Ontario brackets with the surtax and approximate basic personal amounts of $16,500 and $12,950. Canada Pension Plan contributions apply from age 18 at 5.95% between $3,500 and $74,600 and 4% between $74,600 and $85,000, matched by the employer. Employment insurance is generally not payable where the employee does not deal at arm’s length with the employer, though the CRA can rule otherwise, and this calculator assumes non-arm’s length treatment. The Ontario Employer Health Tax applies at 1.95% only on payroll above the $1,000,000 exemption. WSIB coverage and rates vary by industry. This page is general information, not tax advice.
Salary Is the One Split TOSI Never Touched
The tax on split income rules that arrived in 2018 closed almost every route to moving income to a lower-taxed family member. Dividends to a spouse, dividends to adult children, dividends to parents, all now taxed at the top rate unless a narrow exclusion applies.
They did not touch salary. The rules apply to split income, which means dividends, certain interest and certain capital gains. Employment income is not split income and never was.
That makes a salary for genuine work the last straightforward family income split available to an incorporated owner. It does not need an exclusion, it does not need a twenty-hour test, and it does not need the family member to hold shares. It needs the work to be real and the pay to match it.
The Only Test That Matters
Section 67 allows a deduction only to the extent it is reasonable. For a family salary that means one question: would you pay a stranger this much to do this work?
| Factor | What the CRA Looks At |
|---|---|
| Hours | Whether the time was genuinely worked and can be evidenced |
| Rate | What the same role pays at arm’s length in your area |
| Duties | Whether the work is real and the business needed it done |
| Payment | Whether money actually moved, rather than being accrued or journalled |
| Consistency | Whether the pay pattern looks like employment or like a year-end adjustment |
Overpaying Costs More Than It Saves
Where the salary exceeds what the work is worth, the CRA denies the deduction on the excess. The family member is still taxed on it as employment income, so the excess is taxed twice, exactly like a shareholder benefit.
| On 15 Hours a Week at $28 an Hour | Net Household Saving |
|---|---|
| Paying $22,000, close to the defensible $21,840 | $8,706 |
| Paying $60,000 for the same work | $1,619 |
Nearly tripling the salary destroyed 81% of the benefit. The extra pay attracts full personal tax, full employer contributions, and no corporate deduction. Getting the number right matters more than getting it large.
Employment Insurance Usually Does Not Apply
Employment between persons who do not deal at arm’s length is generally not insurable, which means no employee or employer premiums on a spouse or child. That saves roughly 3.9% of the salary between both sides.
It also means no employment insurance entitlement, including maternity and parental benefits. For a spouse who may want those, it is worth asking the CRA for a ruling rather than assuming, because a ruling that the employment is insurable is sometimes the better outcome.
A Child Under 18 Pays No CPP
Canada Pension Plan contributions start at age 18. A child of sixteen working in the business genuinely costs the company nothing beyond the wage itself, and with the basic personal amount around $16,500 federally they will often pay almost no tax.
The work still has to be real. A teenager doing filing, deliveries, social media or basic bookkeeping is entirely defensible. A teenager listed on payroll who has never been to the premises is not.
What to Keep
- A written job description setting out the role and duties.
- Timesheets or a work log, kept as the work happens rather than reconstructed later.
- Evidence of the market rate, such as a job posting for a comparable role.
- Actual payments from the company account to their own account, on a regular cycle.
- Payroll registration, remittances and a T4, all done properly and on time.
- Some output, meaning emails, files, records or work product showing the job was done.
The Saving Depends Entirely on the Gap
The benefit is the difference between your marginal rate and theirs. An owner at the top rate paying a family member with no other income captures the whole spread. An owner in a low bracket, or a family member who already earns well, captures very little.
| Situation | Net Saving on $22,000 |
|---|---|
| Owner at the top rate, family member with no other income | $8,706 |
| Owner at the top rate, family member already earning $80,000 | $3,300 |
| Owner earning $60,000, family member with no other income | $3,865 |
What This Calculator Does Not Cover
- Salary to the owner, which is a separate remuneration decision
- Dividends to family members, which the split income rules do reach
- RRSP room created by the salary, which is a genuine additional benefit
- Childcare deduction interactions where a spouse’s income changes who claims
- Provinces other than Ontario
- Whether the corporation can afford it, which is a cash flow question rather than a tax one
Set it up properly at the start and it is unremarkable. Reconstruct it after a review letter and it is very hard to defend. Our payroll service covers the registration, the remittances and the T4s.
Frequently Asked Questions
Common questions on family payroll.
Related Calculators and Guides
More tools for owner and family compensation.
Set It Up Properly Now, Not After the Review Letter
Tell us the role, the hours and the person. We will set the defensible number, register the payroll, run the remittances and file the T4, so the arrangement stands up if anyone ever asks.