As a small business saving taxes and making sure things work smoothly in your business should be at the top of your list. But after maximizing business expenses what else is there? Have you given it any thought in hiring a family member to save money?
A Few Reasons Why
Hiring a family member might make sense, as long as it does not disrupt the family dynamics; it fills a necessary role and makes good financial sense.
A small business can reap the benefits of employee loyalty by employing a family member that understands that their hard work helps the well- being of the family. It can also help the family member to build their resume.
Making financial sense
Income splitting between a lower income spouse can save the family thousands of dollars in income taxes and increase net earnings. Income splitting with a student or a school-age child can help them cover their expenses and start building their RRSP room.
It would be wise to audit proof the employer/ employee relationship with the family member. The employment should be well documented spelling out the employee pay, role and hours of work. This should be very similar to what would be done for a regular employee.
Treat the family member as you would an employee in a similar role. If that family member receives a salary, the salary should amount to what you would pay any other employee in the market place.
Taking these steps will help you incase CRA was to enquire whether a spouse or a child actually works in the business.
Note:Each taxpayer’s tax position is different. By consulting with your tax professional he or she should be able to provide an example of tax saving scenarios suitable to your particular circumstance.
Michael L. Williamson is an Accounting and Tax Specialist at Williamson Accounting. He regular contributes to the “On The Money” newsletter for the firm.
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