Can I Pay My Spouse or Children?

Splitting income with lower-taxed family members is one of the oldest ideas in Canadian tax planning — which is exactly why Parliament has spent decades narrowing it. What remains is real, but conditional.

There are two channels: paying wages for work actually performed, and paying dividends on shares family members actually own. Each has its own tests, and both are examined with the same question: would you have paid a stranger the same amount for the same thing?

Salaries to a spouse or child are deductible when the work is genuinely performed, the amount is reasonable for the duties, and the payment is actually made and documented — timesheets, job descriptions, payroll records, and payments into the family member's own account. A reasonable wage to a teenager doing bookkeeping or social media is legitimate planning; a phantom salary is not.

Dividends face the tax on split income (TOSI) rules, which tax family dividends at the top marginal rate unless an exception applies. The main gateways: the family member works an average of at least 20 hours per week in the business (this year or any five previous years); or they are 25 or older and hold 'excluded shares' — at least 10% of votes and value in a corporation that earns less than 90% of its income from services and is not a professional corporation. A spouse aged 65 or over receives special relief mirroring pension splitting.