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Why You Should Employ Your Child This Summer

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Child working in store

Are you wondering if there’s another way out there to save money on income taxes? If you’re like many small-business owners, you’re ignoring a tax-saving strategy that’s eating food at your dinner table – and about to get out of school for the summer!

Putting your children to work in your business, even if only for the summer, is one of the most under-utilized tax-saving strategies today. Many business owners simply don’t realize placing children under 18 on the payroll, or even grandchildren or adult children, is an excellent strategy to minimize tax liability.

Beyond the tax savings, you’ll teach your kids a work ethic, money-management skills and a concept of entrepreneurship.

If you’re going to deduct your family employee as a business expense, you must:

  1. pay the spouse or child a salary,
  2. pay the same amount of salary that you would pay someone else to do the job,
  3. pay a salary that is reasonable for the child’s age,
  4. and the spouse or child must be doing work that is necessary for earning business or professional income.

ALL of these conditions must be met before your child is considered a legitimate employee for income tax purposes.

Receipts always matter, so if you pay your  child by cheque, keep the cancelled cheques for your records.

You may pay your child with a product from your business instead of cash, if you wish. If you do, then you would claim the value of the product as an expense in your income tax, and add to your gross sales an amount equal to the value of the product, while your child would include the value of the product in his or her income.

For more information about treating your spouse or child as an employee, see the Salaries, Wages, and Benefits section of the CRA’s Business and Professional Income Guide, or contact us for more information.

 

The information presented is only of a general nature, may omit many details and special rules, is current only as of its published date, and accordingly cannot be regarded as legal or tax advice. Please contact our office for more information on this subject and how it pertains to your specific tax or financial situation.