“I Just Want to Give My Children a Good Life”
How intentional family business planning can align values, education, and CRA-compliant tax strategy
Paying your children through your corporation is legal and CRA-compliant when the work is real, wages are reasonable, and payroll is properly documented. Done correctly, this strategy creates a corporate tax deduction, allows children to earn income at low student tax rates, often avoids CPP and EI, and gives your children the satisfaction of contributing meaningfully to the family business while learning real-world skills.
The Reality Canadian Business Owners Are Living In
Inflation is everywhere.
Groceries cost more.
Gas costs more.
Sports, tutoring, activities, and education all cost more.
You didn’t start your business to chase excess.
You started it to create stability, build opportunity, and support the people you love.
And yet, every time you pay yourself, you feel it.
You earn a dollar, and a meaningful portion disappears to tax before it ever reaches your household.
What you want is simple.
You want to provide well.
You want to say yes to opportunities that help your children grow.
You want the success of your business to translate into security, confidence, and possibility at home.
So you do what most Canadian business owners do.
You pay yourself more.
You absorb the tax.
And you cover your children’s expenses personally.
What many business owners don’t realize is this:
There is a better, fully legal way; one that aligns your business, your family, and the lessons you want your children to learn, while giving your children the satisfaction of contributing, earning, and growing through real involvement in the family business.
Is Paying Your Children Through Your Business Legal in Canada?
Yes when done properly.
The Canada Revenue Agency does not prohibit business owners from employing their children. What the CRA enforces is substance, reasonableness, and documentation.
This is not a loophole.
This is established tax law applied correctly.
The CRA Rule That Actually Matters
Income Tax Act (Canada) Section 67
This is the section CRA relies on during audits:
Income Tax Act (Canada), s. 67
“In computing income, no deduction shall be made in respect of an outlay or expense except to the extent that it was reasonable in the circumstances.”
In practical terms, CRA asks one question:
Would you pay a non-related person the same amount to do the same work?
If yes → the wage is deductible
If no → the deduction can be denied
That’s the framework.
The Wrong Way (Why CRA Audits Go Sideways)
Most problems arise from execution, not intention.
Common CRA red flags:
- The child does not actually perform work
- Wages are inflated relative to duties
- No written job description
- No timesheets
- No payroll account
- Payments made through year-end journal entries instead of payroll
CRA consequences:
- Deduction denied under ITA s. 67
- Income added back to the corporation
- Possible shareholder benefit under ITA s. 15(1)
All of this is avoidable.
The Right Way: Clean, Reasonable, CRA-Defensible
Real, Age-Appropriate Work
CRA accepts legitimate tasks such as:
- Filing and scanning
- Data entry
- Office cleaning and organization
- Social media assistance
- Inventory counting
- Website updates
- Administrative support
The work must be necessary, documented, and actually performed.
Reasonable Wages (Market Test)
Pay should reflect:
- The child’s age
- Skill level
- Market rates for similar work
Typical examples:
- $16–$20/hour for basic admin or support work
- Avoid executive-level wages for entry-level tasks
If it looks normal, CRA treats it as normal.
Proper Payroll (Non-Negotiable)
To remain compliant:
- Register a payroll account
- Run regular pay periods
- Maintain timesheets
- Keep a written job description
- Issue a T4
This is what turns “income splitting” into earned employment income.
Ontario Employment Law: Can Children Work?
Yes.
In Ontario:
- Children are legally permitted to work
- Restrictions mainly apply to hazardous industries
- Office, admin, retail, and family-run business roles are generally permitted
When employment law and tax law align, CRA scrutiny drops significantly.
CPP and EI: A Quiet but Powerful Advantage
Canada Pension Plan (CPP)
Under the Canada Pension Plan Act:
- CPP contributions begin at age 18
Result:
- No employee CPP
- No employer CPP
Employment Insurance (EI)
Under the Employment Insurance Act, EI is generally not required for children employed by a parent, depending on the structure and relationship.
Outcome:
- Lower payroll costs
- Still a fully deductible wage
This is explicitly allowed.
Why Student Tax Rates Make This Strategy So Effective
Most students:
- Benefit from the Basic Personal Amount
- Pay little to no income tax
- Can earn meaningful income tax-efficiently
At the same time:
- The corporation receives a deduction
- Family cash flow improves
- No aggressive tax structures are required
This is legitimate income splitting through employment, not attribution abuse.
The Volleyball Example (Real Life, Real Impact)
Your daughter plays competitive volleyball.
Annual cost: $10,000.
Option 1: Pay personally
- Increase your salary
- Pay high marginal tax
- Pay fees with after-tax dollars
Option 2: Do it properly through the business
- Your daughter works in the business
- Earns income
- Pays for volleyball herself
- The corporation deducts the wages
Same family.
Same money.
Better structure.
And your child learns:
- Responsibility
- Work ethic
- Financial confidence
- Pride in contribution
Is This Income Splitting?
Yes the kind CRA allows.
CRA targets artificial income splitting, not:
- Earned employment income
- Reasonable wages
- Legitimate payroll relationships
That’s why ITA s. 67 governs this strategy.
Who This Strategy Is (and Isn’t) For
This strategy is ideal for:
- Incorporated business owners
- Family-run businesses
- Professionals and entrepreneurs
- Parents who want to teach real-world skills
This strategy is not for:
- Paying children who don’t actually work
- Inflating wages to move income
- One-time undocumented payments
- Businesses unwilling to run payroll properly
CRA-Aware Audit Checklist
Paying Your Children Through Your Business
Use this checklist to stay audit-ready:
Employment Legitimacy
- Written job description
- Age-appropriate duties
- Work actually performed
Reasonableness
- Market-based wages
- Logical hours
- No inflated compensation
Payroll Compliance
- Payroll account registered
- Regular pay runs
- Source deductions handled correctly
- T4 issued
Documentation
- Timesheets retained
- Bank payments (not cash)
- Records properly filed and retained
If every box is checked, CRA has very little to challenge.
Frequently Asked Questions
What is the minimum age to pay my child through my business in Ontario?
Ontario allows children to work in non-hazardous roles, including office and family business environments.
Do I need to register a payroll account?
Yes. Proper payroll is essential for CRA compliance.
Can my child work part-time during school?
Yes, provided hours are reasonable and documented.
Will CRA automatically audit this?
No. CRA audits based on risk. Proper documentation significantly reduces exposure.
Can I pay minimum wage?
Yes, if it reflects the work performed and market rates.
Final Thought
You didn’t build a business just to watch its success stop at your own paycheque.
You built it to:
- Support your family
- Teach responsibility
- Create opportunity
- Build confidence and skills that last a lifetime
Paying your children properly through your business is not aggressive tax planning.
It is intentional, compliant, values-driven planning.
Want to plan better how your children fit into your family business?
With the right guidance, involving your children can go far beyond tax savings. It can become a way to teach responsibility, build confidence, and create meaningful participation — all while staying fully compliant with CRA rules. A thoughtful planning conversation can help you design this the right way.
This is not about shortcuts — it’s about building something intentional, compliant, and lasting.
Toronto • GTA • Ontario — Professional Note
This strategy must be implemented correctly to remain CRA-compliant. Payroll structure, wage reasonableness, and documentation matter. A short planning discussion upfront can prevent costly issues later.
