Paying a spouse or an adult child out of the business is among the most common things an owner-managed company does, and among the most commonly questioned. The surprising part is which half of the question actually decides it.
Key Takeaway
Section 67 denies a deduction except to the extent that the outlay was reasonable, so only the excess is disallowed. The governing test, from Gabco, asks whether no reasonable business person would have agreed to pay that amount having only business interests in mind, and the court has said a taxpayer's business judgment is not in issue. The onus on the taxpayer has two limbs: that amounts were paid for services rendered, and that they were reasonable. The reported losses turn on the first. Salary is not split income for TOSI purposes, which since 2018 has made it the cleaner route for family members who genuinely work.
A Note On Currency
Everything here is stated as verified in August 2026 and requires confirmation before reliance.
We did not read any of the four decisions discussed and take their holdings from commentary and from an academic paper. Citations are reported as our sources give them.
One commentary source asserts that an unreasonable family salary does not trigger double taxation[6]. We could not establish the mechanism and address that in its own section rather than repeating it as fact.
We did not research CRA's own administrative guidance on family remuneration, and this article rests on the statute, case law reported by others, and professional commentary.
Rates used in our arithmetic are assumed, and one figure is taken from a source's own worked example rather than computed by us.
This is not tax advice.
Eight Words That Do The Work
The provision, which is short enough to quote entirely.
Section 67 provides that in computing income, no deduction shall be made in respect of an outlay or expense in respect of which any amount is otherwise deductible under this Act, except to the extent that the outlay or expense was reasonable in the circumstances[1].
Commentary explains where it sits: even where an expense satisfies the income-earning purpose test under paragraph 18(1)(a) or forms part of the computation of business income under section 9, the deduction may still be reduced if the amount itself is excessive[2].
Two observations, ours.
It is a second gate. An expense can pass every other test in the Act and still fail here on quantum alone.
And it applies to any deductible outlay, not only remuneration. Family salaries are the most common application, not the only one.
The words carrying the most weight are to the extent that, and they are the subject of the next section.
Only The Excess
A structural feature that changes what is at stake. This section is our own analysis.
The provision does not say a deduction is denied where an expense is unreasonable. It denies a deduction except to the extent that the expense was reasonable[1].
So the reasonable portion survives, and only the excess is disallowed.
Three consequences.
An assessment under section 67 is a partial adjustment, not a wholesale denial. A salary that is too high by a third loses a third.
Which means the practical exposure on an aggressive figure is smaller than it first appears, and is bounded by the gap between what was paid and what is defensible.
And it changes the shape of a dispute. The argument is not whether the payment was legitimate. It is where the line falls, which is an argument about evidence rather than about principle.
We note this early because it is genuinely reassuring, and because the section on the first limb below explains where that reassurance stops.
The Test Is Phrased In The Negative
The governing formulation, and the phrasing matters more than the substance.
Commentary states that the leading authority remains Gabco Ltd v Minister of National Revenue, in which the court explained that the issue is not whether the CRA or the courts would have negotiated the same amount, and that the question is whether no reasonable business person would have agreed to pay that amount, having only the taxpayer's business interests in mind[2].
Another states it as whether any reasonable business person would have paid the expense in question having solely business considerations in mind[3].
Commentary describes this as an objective commercial standard which continues to guide the application of section 67 and has been reaffirmed in subsequent jurisprudence[2].
Two observations, ours.
The negative construction is doing real work. The question is not was this the right amount but would no reasonable business person have paid it. That is a considerably harder proposition to establish.
And it means a payment sitting anywhere within a range of defensible figures survives, because a reasonable business person could have landed there.
An academic paper puts the consequence flatly: a taxpayer's business judgement is not in issue under section 67[4].
The Leading Case Was Won By The Taxpayer
A fact worth foregrounding, because it frames everything that follows.
Commentary records that in Gabco, the issue concerned the remuneration paid to the president's brother, whom the family-owned construction company employed, and that the court found the compensation reasonable, given the services rendered and the overall benefit to the company[2].
Three observations, ours.
The authority that governs this entire area is a family remuneration case, on facts that are ordinary: a family construction company paying a brother.
And the taxpayer won. The case that gets cited against aggressive arrangements is the case that established how much deference the arrangement gets.
The two factors the court weighed were the services rendered and the overall benefit to the company, which is a broader enquiry than a market rate comparison.
An academic source notes the reach of the decision: Gabco informs almost all of the other decisions under section 67, and observes that if the Supreme Court were to modify or nullify the test, the value of those decisions will need to be re-examined[4].
We have not read the decision and report it from these sources. Its citation is given by commentary as 68 DTC 5210[3].
Business Judgment Is Not In Issue
The principle, and its limit, from the same academic source.
It states that Gabco contains a clear statement that a taxpayer's business judgement is not in issue under section 67. But immediately adds: this does not mean that the CRA is not allowed to make inquiries about quantum[4].
Two observations, ours.
The distinction is between second-guessing a commercial decision, which is out of bounds, and asking what was received for the money, which is not.
So an owner cannot be told their staffing decisions were unwise. They can be asked what the person did.
That distinction runs through the rest of this article, and it explains why the enquiry in practice looks nothing like a debate about pay levels. It looks like a request for evidence of work.
Why The Disallowance Happens At All
The conceptual basis, which our academic source states directly and which we think is the most clarifying sentence in this area.
It records that the judge in Gabco also stated that the Minister of National Revenue is entitled to enquire if remuneration is out of proportion to the services provided and to disallow the disproportionate amount on the basis that it is a distribution of taxable profits[4].
Three consequences, ours.
The excess is not disallowed because it was extravagant. It is disallowed because it was not really remuneration.
What it was instead is a distribution of profits, which is to say a dividend wearing a salary's clothing.
Which explains why the enquiry focuses on proportion to services. Where pay tracks work, it is pay. Where it does not, the surplus is a way of moving profit to somebody.
Our own observation is that this reframing is the most useful thing an owner can carry into the question. The Agency is not asking whether the family member is worth it. It is asking whether the payment is compensation or distribution, and the evidence that separates them is evidence of work.
The Onus Has Two Limbs
What the taxpayer must establish, from a decision reported by commentary.
Commentary states that according to Burrows et al v The Queen, the onus is on the taxpayer to show that the amounts in question were paid for services rendered and were reasonable[3].
Read that as two separate requirements, which is our own framing.
Limb one: paid for services rendered. Something was actually done, by that person, for the business.
Limb two: reasonable. The amount was proportionate to what was done.
Two observations.
The onus is on the taxpayer for both. This is the ordinary position in Canadian tax disputes and it is worth contrasting with the penalty provisions this publication has described elsewhere, where the Crown bears it.
And the two limbs fail differently. A failure on limb two produces the partial disallowance described above. A failure on limb one is not a question of degree at all.
Which is where the practical risk actually sits, as the next section sets out.
The Reported Losses Are On The First
The observation we regard as the practical core of this article.
Commentary reports that in Jastrzebski v The Queen, the Tax Court of Canada denied a deduction for $25,000 paid to family members because they didn't provide services sufficient to justify the compensation[3].
And it prefaces its guidance with the instruction: if you're going to pay salaries to family, it's important that those individuals actually provide services to your business[3].
Three consequences, ours.
Almost all planning attention goes to whether the number is defensible. Owners ask what a bookkeeper is worth, or whether a figure looks aggressive.
The reported loss turned on whether the work happened, which is a question nobody prepares for because the answer feels obvious to the person who lives with the arrangement.
And evidence of the second is much harder to assemble after the fact than evidence of the first. A market rate can be established years later from published data. What somebody did on a Tuesday in a previous year cannot.
Our own conclusion is that the defensive priority is inverted in most practices. The market rate comparison is the part that can wait. The contemporaneous record of work cannot.
We flag that we have not read either decision and take both from a single commentary source.
Salary Is Not Split Income
The interaction that reshaped this area after 2018.
Commentary states plainly: salary paid for actual work performed is not split income. It is subject to the ordinary reasonableness test under section 67 of the Income Tax Act, and it attracts CPP and source deduction obligations, but it is not caught by TOSI[5].
Another puts it the same way: salary and ordinary employment remuneration are not subject to TOSI, although they remain subject to the ordinary rule that deductible amounts must be reasonable, and an unreasonable salary may create other tax problems, including deductibility issues or shareholder-benefit concerns, but it is not analyzed in the same way as a dividend under TOSI[7].
Two observations, ours.
This is a categorical exclusion, not an exception. Salary is not split income at all, so none of the TOSI machinery of excluded amounts and excluded shares applies to it.
And that machinery is demanding. This publication has described elsewhere how the excluded shares exception can be structurally unavailable to certain professional corporations, leaving very little room.
So the practical position after 2018 is that the two routes to putting money in a family member's hands are governed by entirely different provisions with entirely different tests, which is the subject of the next section.
Two Routes, Two Different Tests
The comparison, set out by us, on an illustrative $50,000 to a family member who works in the business.
The dividend route is tested by TOSI under section 120.4. Where it is caught, the top marginal rate applies. One source works a non-eligible dividend at an Ontario top bracket rate of roughly 47.74 percent, giving about $23,870 of tax, and describes the result as achieving no income splitting benefit at all[5].
The salary route is not tested by TOSI. It is tested by section 67 alone, and carries CPP and source deduction obligations.
Three observations, ours.
These are not two ways of doing the same thing. They are two transactions facing different statutory tests, and the tests do not overlap.
The dividend test asks about the recipient's involvement, ownership and age. The salary test asks about services rendered and proportion.
And the salary route has collateral consequences the dividend route does not: source deductions, CPP, and the employment law obligations described further below.
The 47.74 percent figure and the resulting tax are taken from a source's own worked example rather than computed by us, and we report them as illustrative of that source's scenario rather than as a general rate.
Why Salary Became The Cleaner Option
The practical conclusion the commentary reaches, with our own qualification.
Commentary states that for family members who genuinely work in the business, salary is often the cleaner option post-2018[5].
Another sets out where it fits: it may be useful where a spouse, adult child, or other family member provides bookkeeping, administrative, marketing, management, technical, or operational services to the business, and notes that properly structured salary can also allow the recipient to build RRSP contribution room and Canada Pension Plan contributions, while the corporation should keep evidence of the services performed, hours worked, market compensation, and payment records[7].
Our own qualification, and it is the point of the whole article.
The word carrying the weight is genuinely. Salary is cleaner for a family member who works, and it is not a route around anything for one who does not.
Moving from dividends to salary changes which test applies. It does not remove the need to satisfy one, and the test it substitutes has an evidentiary requirement that dividends never had: a record of work performed.
So an owner who moved to salary after 2018 to escape TOSI has taken on a documentation obligation, and the reported cases suggest that is the obligation people fail.
What The Excess Costs
The magnitude, computed by us at an assumed small business rate of 12.5 percent.
A salary of $80,000 where $45,000 is defensible leaves an excess of $35,000, denied to the corporation, costing roughly $4,375.
A salary of $50,000 where $45,000 is defensible leaves $5,000, costing roughly $625.
A salary of $25,000 fully supported costs nothing.
Three observations, ours.
The figures are modest, because a small business rate applied to a partial disallowance produces small numbers.
Which means a section 67 adjustment on remuneration is rarely the reason a business is in difficulty. It is an adjustment, not a catastrophe.
But the same enquiry that produces it will usually run across several years and several family members, and it establishes a pattern that shapes everything else in the examination.
And a failure on the first limb rather than the second removes the whole amount rather than the excess, which on the $80,000 case is $80,000 rather than $35,000.
A Claim We Could Not Verify
An assertion in our sources that we are reporting rather than adopting.
Commentary states that while paying an unreasonable salary to a family member does not trigger double taxation to the family, it will disallow the excess salary portion as a deductible for your CCPC, leading to a higher tax burden for your company[6].
The difficulty, and this is our own analysis.
The family member has already included the salary in income and paid tax on it, because a T4 was issued and a return was filed.
The corporation is then denied the deduction for the excess.
On the face of it, the same dollars have been taxed in the corporation and in the recipient's hands, which is what double taxation means.
We did not establish the mechanism by which that is avoided, and we are not going to invent one. There may be an administrative practice, a relieving provision, or an adjustment available to the recipient. Our source asserts the outcome without stating the route.
Two observations.
This matters practically. If the outcome is as our source states, the cost of an adjustment is the corporate tax on the excess. If it is not, the cost is considerably higher.
And it is exactly the kind of proposition that is comfortable to repeat, which is why we are flagging it rather than passing it on.
Anyone facing an actual adjustment should establish this specifically, because it changes the number.
The Premium You Should Not Be Deducting
A payroll point that runs the opposite way from most compliance advice.
Commentary instructs employers to document why, and don't deduct EI if it's not insurable[8].
Two observations, ours.
Employment between related persons raises a question about insurability that does not arise with an arm's length employee, and the default assumption that every employee is insurable is unsafe here.
And the error runs in the opposite direction from most payroll errors. The usual failure is under-withholding. Here it is deducting and remitting a premium that was never owed, from an employee who cannot claim against it.
We did not research the insurability provisions and do not state the test. What we will say is that this is a determinable question rather than a judgment call, and that a business paying family members should have determined it rather than assumed it.
The commentary's instruction to document why is the operative part. A decision not to deduct needs a recorded basis, or it looks like an omission.
Employing A Minor
A specific case with its own rules.
Commentary states that you can employ your teen if provincial employment standards are met and the work is safe and age-appropriate, that you should pay at least minimum wage, track hours, and issue a T4 like any other employee, and that CPP won't apply before age 18 while income tax withholding may still apply depending on earnings and TD1 claims[8].
Another notes that the salary should be comparable to what you'd pay a third party for the same work, especially considering your child's age and experience, and that documentation proving payment should be kept, such as a cancelled cheque, a receipt for cash paid to your child, or a copy of an electronic funds transfer[6].
Two observations, ours.
The comparator is adjusted for age and experience, which cuts both ways. It permits a genuine wage for genuine work, and it does not support a professional rate for a teenager.
And the emphasis on proof of payment is telling. Where a family member is a minor, the money frequently does not leave the household, and a payroll entry with no corresponding transfer is a weak record.
We flag that CPP applies from age 18 and did not research the treatment of a person turning 18 mid-year.
When The Spouse Is Also A Shareholder
A common structure with a specific instruction.
Commentary states that if your spouse is also a shareholder or director, you can still pay a salary for employment duties; just keep the job duties separate from ownership activities[8].
Three observations, ours.
The two roles attract different characterisations. Payment for employment duties is remuneration; payment for being an owner is a distribution.
Which connects directly to the Gabco rationale set out earlier: excess remuneration is disallowed on the basis that it is a distribution of taxable profits. Where the recipient is also a shareholder, that characterisation is the obvious one to reach for.
So the separation of duties is not administrative tidiness. It is the evidence that distinguishes the two.
The commentary also notes that an unreasonable salary can raise shareholder-benefit concerns[7], which is a further consequence this publication has addressed separately and which does not arise where the recipient holds no shares.
Family Status Does Not Override Employment Law
A boundary worth stating because it is routinely overlooked.
Commentary states directly that family status doesn't override employment standards, and instructs employers to follow minimum wage, vacation pay, and records rules[8].
Two observations, ours.
An arrangement structured to satisfy section 67 can still fail provincial employment standards, and those are administered by an entirely different authority with its own consequences.
And the records those standards require, being hours worked and wages paid, are the same records section 67 wants. Complying with one produces the evidence for the other.
Our own observation is that this is the single most efficient thing an owner can do here. A business that runs family payroll to the same standard as any other payroll has, as a by-product, assembled most of the file that answers the tax question.
We did not research any province's employment standards and note that the source is describing British Columbia.
A Test You Can Apply Yourself
A serviceable rule of thumb from commentary, with our own reading of why it works.
Commentary offers: if you could never justify hiring someone outside the family at the salary you pay your spouse or child, it's a good bet the compensation is too high[6].
It adds the underlying conditions: the work must be necessary for earning business, professional, or fishing income, and the salary should be comparable to what you'd pay a third party for the same work[6].
Two observations, ours.
The heuristic is a plain-language restatement of the Gabco test, and it is a fair one. A reasonable business person considering only business interests is a person deciding whether to hire a stranger.
And it is usable without advice, which most tax tests are not. An owner can answer it honestly in a few seconds.
We would add one thing the heuristic does not capture, which returns to the first limb. It tests the amount. It does not test whether the work is happening, and the reported losses were on that question.
The complete self-test is therefore two questions rather than one: would I hire a stranger to do this at this price, and could I demonstrate what was done.
What The Auditor Actually Examines
The enquiry in practice. This section is our own analysis.
T4s issued to family members, which is the visible starting point.
Evidence that services were rendered, which is the first limb and the one that decides the reported cases.
Hours, tasks and system access, which is how involvement is demonstrated rather than asserted.
Comparable market compensation for the work described.
Proof of payment, being transfers rather than journal entries.
Whether the recipient is also a shareholder, which invites the distribution characterisation.
EI premiums deducted where the employment may not be insurable.
Consistency across years, since a figure that moves with the company's profit rather than with the work is evidence of what it really is.
The last item deserves emphasis and is our own. Remuneration that rises in profitable years and falls in lean ones is behaving like a distribution, and the pattern is visible from the returns alone.
What Records Survive
A written role description for each family member, dated.
Contemporaneous time records, which cannot be reconstructed later.
Evidence of actual output: emails sent, files maintained, systems accessed, work product.
A market rate comparison for the role as described, with its source.
Proof of payment to the family member, separate from the payroll entry.
The insurability determination and the reason EI was or was not deducted.
Separation of employment duties from ownership activities where the recipient is also a shareholder.
What To Do
Establish that the work is real before worrying about the rate. The reported losses turn on services not being rendered, not on the number being wrong.
Keep the time record as you go. A market rate can be evidenced years later; a record of what somebody did cannot.
Apply the stranger test. If you could not justify hiring someone outside the family at that salary, the amount is probably too high.
Take some comfort from the wording. Section 67 denies a deduction only to the extent the outlay was unreasonable, so the defensible portion survives.
And more from the test. Gabco asks whether no reasonable business person would have paid it, and holds that business judgment is not in issue.
Understand what the Agency is really asking. Excess remuneration is disallowed on the basis that it is a distribution of profits, so the question is compensation or distribution.
Know that salary is outside TOSI. It is not split income at all, which is why it became the cleaner route after 2018 for family members who genuinely work.
But do not treat that as escaping a test. It substitutes one test for another, and the new one has an evidentiary requirement the old one did not.
Determine insurability rather than assuming it. Commentary warns against deducting EI where employment is not insurable, and to document the reason.
Run family payroll like any other payroll. Employment standards require the same records section 67 wants, so compliance with one produces the evidence for the other.
The Limits Of This Analysis
Several caveats matter. This is not tax advice. Everything is stated as verified in August 2026 and requires confirmation. We did not read any of the decisions discussed, being Gabco, Burrows, Jastrzebski and the Federal Court of Appeal authorities referred to, and take their holdings and citations from commentary and an academic paper. One source asserts that an unreasonable family salary does not trigger double taxation; we could not establish the mechanism and expressly decline to adopt the proposition, addressing it in its own section instead. We did not research CRA's own administrative guidance on family remuneration. We did not research the employment insurance insurability provisions and state no test. We did not research any province's employment standards, and note that one source describes British Columbia. We did not research the treatment of a family member turning 18 during a year, the interaction with the Canada Pension Plan enhancement, the position of partnerships or sole proprietorships as distinct from corporations, the deductibility of amounts paid to a family member as an independent contractor rather than an employee, or the shareholder benefit provisions beyond noting that commentary raises them. The 47.74 percent rate and the resulting tax figure are taken from a source's own worked example rather than computed by us. All other arithmetic is our own, uses an assumed small business rate, and is illustrative only. The two-limb framing, the observation that the reported losses fall on the first limb, the two-question self-test and the audit examination structure are our own.
Frequently Asked Questions
Can we pay a spouse or adult child from the business?
What actually gets people into trouble?
If the salary is too high, do we lose the whole deduction?
Is salary better than dividends for family members now?
Should we be deducting EI?
What is the quickest self-test?
References
- Government of Canada. Income Tax Act, RSC 1985, c. 1 (5th Supp.), section 67, as published, providing that in computing income, no deduction shall be made in respect of an outlay or expense in respect of which any amount is otherwise deductible under the Act, except to the extent that the outlay or expense was reasonable in the circumstances. Note: primary legislation, quoted in full. laws-lois.justice.gc.ca
- Rotfleisch & Samulovitch PC. Unreasonable Business Expenses in Canada: When the CRA Can Deny Your Tax Deduction Under Section 67, on an expense satisfying the income-earning purpose test under paragraph 18(1)(a) or forming part of the computation of business income under section 9 still being reducible if the amount itself is excessive; on the leading authority remaining Gabco Ltd v Minister of National Revenue, in which the court explained that the issue is not whether the CRA or the courts would have negotiated the same amount but whether no reasonable business person would have agreed to pay that amount having only the taxpayer's business interests in mind; on that objective commercial standard continuing to guide the application of section 67 and having been reaffirmed in subsequent jurisprudence; and on the facts of Gabco concerning remuneration paid to the president's brother, employed by a family-owned construction company, with the court finding the compensation reasonable given the services rendered and the overall benefit to the company. Note: a tax law firm publication dated June 2026. We did not read the decision. taxlawcanada.com
- The Globe and Mail. For the Self-Employed, Hiring Family Can Pay Off in Deductions, on tax law allowing a claim for any expense incurred for the purpose of earning income from a business as long as the expense is reasonable; on the test set out in Gabco Ltd v Minister of National Revenue, 68 DTC 5210, being whether any reasonable business person would have paid the expense having solely business considerations in mind; on the Tax Court of Canada decision in Burrows et al v The Queen, 2007 DTC 148, holding that the onus is on the taxpayer to show that the amounts in question were paid for services rendered and were reasonable; on the importance of family members actually providing services to the business; and on Jastrzebski v The Queen, 2008 UDTC 98, in which the Tax Court denied a deduction for $25,000 paid to family members because they did not provide services sufficient to justify the compensation. Note: a national newspaper personal finance column dated 2013. We did not read any of the decisions and take their citations from this source. theglobeandmail.com
- Rachert, J.A. Proving Business Expenses: Checklists and Commentary, on the Federal Court of Appeal in Glaxo importing the reasonableness test from Gabco into the analysis under subsection 69(2); on Gabco informing almost all of the other decisions under section 67, so that if the Supreme Court modifies or nullifies the test the value of those decisions will need to be re-examined; on Gabco containing a clear statement that a taxpayer's business judgement is not in issue under section 67; on that not meaning CRA is disallowed from making inquiries about quantum; and on the judge having stated that the Minister of National Revenue is entitled to enquire if remuneration is out of proportion to the services provided and to disallow the disproportionate amount on the basis that it is a distribution of taxable profits. Note: a practitioner paper. victoriataxlaw.ca
- Zenbooks. TOSI Rules Explained: A CPA's Guide to Tax on Split Income in Canada, on salary paid for actual work performed not being split income, being subject instead to the ordinary reasonableness test under section 67 and to CPP and source deduction obligations, but not caught by TOSI; on salary often being the cleaner option post-2018 for family members who genuinely work in the business; and on a worked example in which a $50,000 dividend to a non-active spouse would probably be caught by TOSI, taxed at roughly 47.74 percent on non-eligible dividends at the Ontario top bracket for about $23,870 in tax, achieving no income splitting benefit. Note: an accounting firm publication dated June 2026. The rate and resulting tax are that source's own worked example rather than our computation. zenbooks.ca
- FBC. What Happens If I Pay My Relative an Unreasonable Salary?, on the work having to be necessary for earning business, professional or fishing income; on the salary needing to be comparable to what would be paid to a third party for the same work, especially considering a child's age and experience; on keeping documentation proving payment such as a cancelled cheque, a receipt for cash paid, or a copy of an electronic funds transfer; on the heuristic that if you could never justify hiring someone outside the family at that salary the compensation is probably too high; and on the assertion that paying an unreasonable salary to a family member does not trigger double taxation to the family, while disallowing the excess portion as a deduction for the corporation. Note: a farm and small business tax services publication. We could not establish the mechanism supporting the double taxation assertion and do not adopt it. fbc.ca
- Rotfleisch & Samulovitch PC. Navigating the TOSI Rules: Income Splitting and How to Legally Split Corporate Income with Family, on salary not being subject to TOSI in the same way as dividends while still needing to be reasonable having regard to the work performed; on that option being useful where a family member provides bookkeeping, administrative, marketing, management, technical or operational services; on properly structured salary allowing the recipient to build RRSP contribution room and Canada Pension Plan contributions, with the corporation keeping evidence of services performed, hours worked, market compensation and payment records; and on an unreasonable salary potentially creating separate tax problems including denial of deductibility or shareholder-benefit concerns, while not being analyzed in the same way as a dividend under TOSI. Note: a tax law firm publication dated June 2026. taxlawcanada.com
- CPABC. Paying Family Members from Your Small Business: Salaries, T4s and CRA Rules, on documenting why and not deducting EI where employment is not insurable; on family status not overriding employment standards, with minimum wage, vacation pay and records rules to be followed; on being able to employ a teen where provincial employment standards are met and the work is safe and age-appropriate, paying at least minimum wage, tracking hours and issuing a T4 like any other employee; on CPP not applying before age 18 while income tax withholding may still apply depending on earnings and TD1 claims; on paying a spouse being common and legitimate where they genuinely handle operations, books, scheduling, marketing or management, with documentation of hours, tasks, system access and evidence of ongoing involvement; and on being able to pay a salary for employment duties where a spouse is also a shareholder or director, provided job duties are kept separate from ownership activities. Note: a professional body publication dated June 2026 describing British Columbia. bccpa.ca
This article is provided for general informational purposes and is not tax advice. None of the decisions discussed were read; their holdings and citations are taken from commentary and a practitioner paper. A source's assertion that an unreasonable family salary does not cause double taxation could not be verified and is not adopted here. One rate and its resulting tax figure are taken from a source's worked example. All other arithmetic is the authors' own and is illustrative only.