Should I pay wages to my spouse and children?

Yes. Well, probably. Paying wages to family members is a very good way to reduce the family’s overall tax burden without causing any additional hardship to the business. This is accomplished by taking advantage of the bracketed system by paying your spouse and children, who are in a lower tax bracket than you, some income from the farm. If you consider the role each of your family members play on the farm, it would be reasonable to conclude that were you to hire a non-related person to perform those duties, you would have to pay them for their time.

 The most important consideration when determining what to pay your family members is the reasonability of the wage considering the work performed. Typical activities where compensation would be appropriate would include but are not limited to: bookkeeping, filing, administrative work, picking up supplies, or general farm labour. Another important consideration is the fact that family members may be on call 24 hours a day to assist with the above mentioned services. To minimize paperwork, it is common to see these family members getting paid only once a year. However, it is still very important that a cheque gets issued and that appropriate source deductions are withheld.

When it comes to justifying wages paid to family members, the important factors are:

Proof of transfer of control over funds paid. A cheque being deposited into the family member’s bank account would be sufficient. 

Documentation of hours worked. Ideally a time sheet prepared by the payee showing the dates and type of work performed is sufficient.

Reporting the income. Children under the age of 18 do not typically owe taxes and therefore wouldn’t need to report the income on a tax return. However, by having the children report the income, it helps to legitimize the transaction. As an added benefit, the income will give rise to their RRSP contribution limit.

For further information on wages to family members, do not hesitate to give our office a call.

Winnipeg (St. Norbert) 3553 Pembina Hwy

Head Office

Winnipeg MB R3V 1A5
Phone: (204) 269-7460
Fax: (204) 269-7096
Email: talbot@talbotcpa.ca