Can my client pay their spouse or children a salary from the business, and what payroll applies?
Yes. In 2026 your client can deduct a salary paid to a spouse or child if it's actually paid, the work is needed to earn the income, and the amount matches what a stranger would get, allowing for a child's age. Run payroll with income tax, CPP from age 18 and a T4. EI is usually excluded for relatives.
A family salary is deductible only if it passes three CRA tests
The CRA lets your client deduct a salary paid to a child only when all three conditions are met: the salary is actually paid, the work is necessary to earn the business income, and the amount is reasonable given the child's age and what your client would pay someone else. The same rules apply to a spouse or common law partner canada.ca.
| Test | What the CRA looks for | What to keep on file |
|---|---|---|
| Actually paid | Money leaves the business, not an entry in the books | Cancelled cheque or bank transfer; a receipt signed by the family member if paid in cash |
| Necessary work | The duties help earn the business income | A short job description and timesheets |
| Reasonable amount | What your client would pay an unrelated person, allowing for a child's age | Comparable job postings or wages paid to other staff |
| Reported like any employee | A T4 for the spouse or child, as for other employees | Payroll records and the T4 |
The reasonableness limit is in the Income Tax Act itself. Section 67 allows a deduction only to the extent the expense was reasonable in the circumstances laws-lois.justice.gc.ca. If your client pays a teenager $40,000 for filing two afternoons a month, the CRA can deny the excess, and the full amount is still income to the child.
Two things never qualify. A sole proprietor can't deduct a salary or drawings paid to themselves, and your client can't claim the value of board and lodging provided to dependent children or to a spouse or common law partner canada.ca.
Which payroll deductions apply to each family member?
Family members go through payroll like anyone else. The CRA says to deduct income tax and CPP for a related employee as you would for other employees, and decide EI separately canada.ca.
| Family member | Income tax | CPP | EI | T4 |
|---|---|---|---|---|
| Spouse or common law partner, salary deductible | Deduct | Deduct, 5.95% each side | Not insurable unless the arm's length terms test is met | Yes |
| Spouse, salary not deductible | Deduct | None, excepted under CPP Act 6(2)(d) | Not insurable unless the terms test is met | Yes |
| Child under 18 | Deduct | None until 18 | Not insurable unless the terms test is met | Yes |
| Child who turns 18 in the year | Deduct | Deduct, maximum prorated | Not insurable unless the terms test is met | Yes |
| Adult child, 18 to 69 | Deduct | Deduct | Not insurable unless the terms test is met | Yes |
| Child paid only in business products | Value is the child's income | None, excepted under CPP Act 6(2)(f) | No cash pay | Value reported as income |
| Niece, nephew or cousin | Deduct | Deduct | Usually insurable: not related by blood | Yes |
CPP applies to employees aged 18 to 69, and you prorate the maximum in the year an employee turns 18 or 70 canada.ca. For 2026 the rate is 5.95% each for employee and employer on earnings between the $3,500 basic exemption and the $74,600 YMPE
canada.ca. Full figures are on CPP max 2026. The Canada Pension Plan excepts employment by a spouse when the pay can't be deducted under the Income Tax Act, and employment of a child for which no cash is paid
laws-lois.justice.gc.ca.
For EI, related employees are generally treated as not dealing at arm's length, so the work is insurable only if it's reasonable to conclude your client would have entered into a similar contract with an unrelated person. The CRA weighs pay, terms and hours, duration, and the nature and importance of the work canada.ca. Aunts, uncles, nieces, nephews and cousins aren't related by blood. If the owner also controls more than 40% of the voting shares, see EI for owner managers.
On the T4, report the pay in box 14 and pensionable earnings in box 26, then either box 24 (insurable earnings) or a tick in box 28 for EI exempt canada.ca. The T4 boxes explained page walks through each box.
How much does a $30,000 spouse salary save in 2026?
Your client is a sole proprietor with $150,000 of taxable income for 2026 after her own CPP deductions, in the 26% federal bracket that runs from $117,045 to $181,440 canada.ca. Her spouse has no other income and starts keeping the books 15 hours a week at a market rate, for $30,000 a year. The employment isn't insurable under the related person rule. The figures are federal only.
CPP on the spouse is ($30,000 − $3,500) × 5.95% = $1,576.75 from each side. Your client deducts $31,576.75 (the wage plus her employer CPP), which leaves her at $118,423, still in the 26% bracket and still above every CPP ceiling, so her own CPP doesn't change.
The spouse deducts the 1% first additional CPP, $265, and claims a credit on the 4.95% base portion, $1,311.75 canada.ca. Taxable income is $29,735, and 14% of it is $4,162.90. Credits at 14% on the $16,452 basic personal amount, the $1,501 Canada employment amount and the $1,311.75 of base CPP come to $2,697.07
canada.ca. The spouse owes $1,465.83.
The gotcha is the spouse amount. Before the salary, your client claimed the spouse amount on line 30300: her own basic personal amount minus the spouse's income, which was $16,452 × 14% = $2,303.28 of federal tax. Once the spouse earns $30,000, that claim is zero.
| Federal, 2026 | No salary | $30,000 salary to the spouse |
|---|---|---|
| Business income set aside | $31,576.75 | $31,576.75 |
| Your client's tax on it at 26% | $8,209.96 | $0 |
| Spouse amount credit, your client | $2,303.28 back | $0 |
| Employer CPP | $0 | $1,576.75 |
| Spouse's CPP | $0 | $1,576.75 |
| Spouse's federal tax | $0 | $1,465.83 |
| Family keeps | $25,670.07 | $26,957.42 |
The family keeps $1,287.35 more federally, and $3,153.50 lands in the spouse's CPP record. The spouse amount formula is in paragraph 118(1)(a) of the Act laws-lois.justice.gc.ca. Provincial tax isn't counted. If the spouse already had income above $16,452, there would be no spouse amount to lose, but the spouse's own basic personal amount would already be used, so the gain would be about the same.
How much can a child earn tax free, and does it add RRSP room?
The CRA's test has no minimum age. It asks whether the pay is reasonable for the child's age and what your client would pay someone else for the same work, so a 14 year old sorting stock earns a teenager's wage, not a bookkeeper's.
A child with no other income pays no federal tax on wages up to $17,953 in 2026: the $16,452 basic personal amount plus the $1,501 Canada employment amount, both credited at 14% canada.ca. A 15 year old paid $12,000 for summer and weekend work owes no federal tax and, being under 18, no CPP. Use the child's TD1 for 2026 to set the tax deduction, which is often nil at that pay.
Salary is earned income, so it builds RRSP room: 18% of the prior year's earned income, up to the dollar limit canada.ca. The T4040 sets no minimum age. The $12,000 summer wage creates $2,160 of room for 2027, and the spouse's $30,000 creates $5,400, both under the $35,390 limit for 2027
canada.ca. Dividends create none. More on the 2026 RRSP limit.
Paying in kind works too. Your client can pay a child with a product from the business, claim its value as an expense, add the same amount to gross sales, and the child includes the value in income canada.ca.
What changes when the business is a corporation?
The same three tests and section 67 apply to the corporation's deduction. The difference is the choice between salary and dividends. TOSI doesn't reach salary: in the CRA's Example 5B, section 120.4 doesn't apply to a salary paid instead of dividends, and section 67 shouldn't limit the deduction where the pay matches what the corporation pays others for comparable work canada.ca. Dividends to a spouse or child who doesn't work in the business usually fall under the TOSI rules.
When the corporation accrues a year end salary or bonus to a family member, it has to pay it within 180 days after the end of the taxation year. Unpaid remuneration on that day is deductible only in the year it's paid, under subsection 78(4) laws-lois.justice.gc.ca. See bonus accrual and the 180 day rule.
If the employment turns out to be insurable, EI for 2026 is 1.63% from the employee up to $1,123.07, and $1,572.30 at most from the employer canada.ca. For the full corporate comparison, see salary vs dividends.
Sources
Is there a minimum age for paying a child a salary from the business?
No, not in the CRA's test. The salary has to be actually paid, for work the business needs, at an amount that's reasonable for the child's age and what your client would pay someone else canada.ca. Provincial employment standards on child labour are a separate question.
If the CRA denies part of a spouse salary, is CPP still owed on it?
No, not on pay that isn't deductible. CPP Act paragraph 6(2)(d) excepts employment by a spouse or common law partner unless the remuneration can be deducted under the Income Tax Act laws-lois.justice.gc.ca. The CRA repeats that exception on its family hiring page
canada.ca.
Can my client pay a family member with room and board instead of wages?
No deduction for that. Your client can't claim the value of board and lodging provided to dependent children or a spouse or common law partner canada.ca. Paying in business products is different: the value is deductible, added to gross sales and taxed to the child.
Does paying a spouse a salary trigger the attribution rules?
No. Salary is employment income for work done, not income from property your client gave the spouse, so it stays with the spouse once it passes the reasonableness test. Attribution is about gifts and loans to invest; see attribution rules for a spouse.
General information for the tax year shown, not advice for a specific client. Confirm the facts before you file or remit.