- That the person hired actually does the work that they are hired to do
- That the job is required and that someone else would have been hired if the family member was not available
- That the family member is not paid more than another employee would be paid to do the same job
- That the family member is paid regularly for their work, rather than receiving a lump sum once a year, for example
Keeping detailed records is important. A business owner who employs family members may be more likely to be audited by the CRA. Therefore, you will need to show that the family members who are employed by your business are legitimate.
Whenever possible, keep records regarding the hours that the family member worked, the work that was completed, etc. This will help prove to the CRA that your family member does legitimate work.
Upcoming to Changes to Pay Attention To
It’s important to note the recent announcements made by Finance Minister Bill Moreau regarding what he called “income sprinkling.” This is a situation, similar to the one described above, where a business owner lowers his or her own tax obligation by employing family members.
Recently, Morneau stated that “there is evidence that some may be using corporate structures to avoid paying their fair share” of taxes and that the government will be cracking down on these situations. Morneau stated that the government is creating new rules “to determine whether compensation is reasonable, based on the family member’s contribution of value and financial resources to the private corporation.”