Paying your kids from your business in Canada is one of the cleanest tax-planning moves a family-run company has. Done right, it shifts taxable income from your top bracket to your child’s zero bracket, the family keeps every dollar, and the federal tax bill drops by thousands. Done sloppily, it gets reassessed, penalized, and turned into an audit headline.
The CRA rules are not complicated, but they are specific. Real work. Reasonable pay. Documented hours. Proper payroll. Miss any of those and the deduction gets disallowed. This guide is the framework we walk every family-business client through, with the 2026 numbers, the under-18 vs over-18 split, a real client example, and the seven mistakes we see most often.
The short answer
Yes, you can pay your kids from your Canadian business, incorporated or sole proprietor. They must do real, age-appropriate work, you must pay a rate comparable to what you would pay a stranger for the same work, and you must run it through proper payroll (CRA payroll account, T4 at year-end, scheduled paydays, full documentation). Under 18, stick to salary and stay away from dividends to avoid the TOSI rules.
Why this works so well
In 2026, the federal basic personal amount (the income each person can earn before any federal tax applies) is roughly $16,000, indexed up slightly each year for inflation. Provincial basic personal amounts vary; Ontario sits around $12,000, Alberta closer to $22,000. The combined federal and provincial tax-free zone for most provinces is in the $15,000 to $22,000 range.
If you are in a 48% combined marginal bracket and you pay your child $15,000 for legitimate work, the family saves roughly $7,200 in tax every year. Every dollar shifted from your top bracket to your child’s zero bracket is roughly forty-eight cents saved. The money stays in the family. The federal and provincial tax bill drops. The child gets paid for real work.
The four rules CRA actually enforces
1. The work has to be real
CRA will not let you pay a six-year-old $50,000 to “help around the office.” The work must be real, age-appropriate, and the kind of task you would otherwise pay an outside person to do. Common roles we see hold up in audit:
- Packing and shipping orders (especially for Amazon FBA, Shopify, and Etsy sellers)
- Inventory counting and stock-take
- Data entry and admin tasks
- Social media posting and basic content creation
- Product photography for listings
- Cleaning the office or workspace
- Answering phones or routing emails
A twelve-year-old can credibly pack boxes. They probably should not be doing your bookkeeping. Match the task to the age.
2. The pay has to be reasonable
You pay your child what you would pay any other person for the same work. If the going rate for packing boxes in your area is $16 per hour, you do not pay your fifteen-year-old $45 per hour for the same job. CRA looks at comparable employee compensation when they audit, and they will adjust unreasonable amounts down.
The test we use with clients: would you pay a stranger this amount for this work? If yes, you are fine. If no, the difference will get disallowed.
3. Document everything
Treat your child as you would any other employee. The paperwork is the difference between a successful audit defence and a disallowed deduction.
- Track their hours. Use a simple timesheet, spreadsheet, or time-tracking app. Record date, hours worked, and tasks performed.
- Keep a job description. One paragraph is enough. List the responsibilities and the agreed hourly rate.
- Pay them properly. Cheque, e-transfer, or direct deposit into their own bank account. Do not pay cash with no record. CRA wants a paper trail.
- Pay on a regular schedule. Weekly, biweekly, or monthly. Not a single lump sum at year-end designed to backfill a tax move.
4. Set up payroll with CRA
If you are paying salary (which you should be for kids), you need a payroll account with CRA. The setup:
- Register for a payroll account (the RP suffix on your Business Number) through CRA My Business Account or by phone.
- Calculate source deductions: income tax (often zero for kids under the BPA), CPP if they are 18 or older and earning above the basic exemption.
- Remit deductions to CRA on time. Late remittances attract penalties quickly.
- Issue a T4 at year-end and file the T4 summary by the last day of February.
If your child earns below the basic personal amount, their income tax deduction at source is zero. You still need to run payroll, issue the T4, and file the summary.
Under 18 vs over 18
Most of the tax mechanics are the same, but a few rules turn on age 18.
| Rule | Child under 18 | Child 18 or older |
|---|---|---|
| Salary for real work | Yes | Yes |
| CPP contributions | Not required | Required on earnings above $3,500 basic exemption |
| EI premiums | Generally exempt for non-arm’s-length family relationships | Generally exempt for non-arm’s-length family relationships |
| Dividends from your corporation | Avoid. TOSI taxes at top marginal rate | Possible if TOSI exclusion applies (typically 20+ hours/week of regular work) |
| Builds RRSP contribution room | Yes, on earned salary income | Yes |
| T4 required | Yes | Yes |
A real client example
Two teenagers, an Amazon FBA family business
An incorporated client came to us with two teenagers, ages 15 and 17, who help pack Amazon FBA shipments on weekends and after school. The setup we built:
| Child 1 (age 15) | Child 2 (age 17) | |
|---|---|---|
| Role | Packing and labeling | Product photography and social media |
| Hours per week | 6 | 8 |
| Rate | $16 / hour | $18 / hour |
| Annual salary | ~$4,800 | ~$7,200 |
| Income tax | $0 (under BPA) | $0 (under BPA) |
| CPP | $0 (under 18) | $0 (under 18) |
| Tax savings, parent at 48% | $2,304 | $3,456 |
Total family tax savings: $5,760 per year. The kids learn a real work ethic, get paid legitimately into their own bank accounts, build RRSP room for the future, and the family keeps every dollar.
What not to do
Every one of these has come up in a client audit we have either defended or cleaned up. None of them are unavoidable mistakes. Just rules to know up front.
- Paying for work that does not happen. CRA can ask your child directly to describe their duties during an audit. If they cannot, the deduction is gone.
- Paying dividends to children under 18. The Tax on Split Income (TOSI) rules tax those dividends at the top marginal rate. It is the worst outcome possible and it removes the entire benefit.
- Skipping the payroll setup. Paying your child informally with no T4 means no deduction for the business and potential late-filing penalties.
- Overpaying for simple work. $50 per hour to file papers will get challenged. CRA adjusts to comparable market rates.
- Forgetting the T4 filing. Even if no tax was withheld, the T4 must be issued and the T4 Summary filed by the end of February.
- Lump-sum year-end payments with no schedule. CRA reads single annual payments as tax-driven rather than employment-driven.
- Paying cash with no record. No paper trail equals no deduction. Use cheque, e-transfer, or direct deposit every time.
Frequently asked questions
Can I pay my kids from my business in Canada?
Yes, whether you are incorporated or a sole proprietor. The children must do real, age-appropriate work. You must pay a reasonable rate comparable to what you would pay an outside person. Run it through proper CRA payroll and issue a T4 at year-end.
How much can I pay my child without them paying tax?
In 2026, the federal basic personal amount is roughly $16,000 and the provincial amount in most provinces is between $12,000 and $22,000. The combined tax-free zone for most provinces is in the $15,000 to $22,000 range. Your child can earn up to the lower of the two before any tax is owed.
Do I need to deduct CPP when paying my child?
Not if they are under 18. Once they turn 18, CPP contributions apply on earnings above the basic exemption of $3,500 per year. The combined employer and employee CPP rate is currently around 11.9 percent on pensionable earnings, so factor that into the cost.
What about EI premiums?
If your child is a family member and the employment relationship is non-arm’s-length (which is the case for most parent-child working relationships), EI premiums generally do not apply. Confirm the specifics with your accountant for your structure.
Can I pay my child as a contractor instead of an employee?
Generally no. CRA applies the same employee vs contractor tests it applies to anyone else. A child working under your supervision, with tools and tasks set by you, on a regular schedule, is an employee. See our companion guide on the contractor vs employee distinction.
Can I pay dividends to my adult child from my corporation?
Sometimes. Once your child is 18 or older, dividends are possible, but the Tax on Split Income (TOSI) rules still apply unless an exclusion is met. The most common exclusion is the “excluded business” test, which generally requires the adult child to work in the business an average of 20 or more hours per week throughout the year on a regular and continuous basis. If they do not meet a TOSI exclusion, the dividends get taxed at the top marginal rate and the strategy backfires. Always check with your accountant before paying dividends to family members.
What if my child earns more than the basic personal amount?
They start paying tax on the excess, but only at their own marginal rate, which for a teenager will still be the lowest bracket. The income shifting still works; it just produces a smaller per-dollar saving above the BPA.
Does paying my child build RRSP room for them?
Yes. Earned salary income generates 18 percent of that amount as RRSP contribution room the following year, up to the annual limit. This is one of the under-appreciated long-term wins. A teenager earning $7,000 builds $1,260 of RRSP room they can use later. Compound that over several years and your kid has a meaningful retirement savings foundation before they finish university.
Set this up properly with us
Paying your kids from your business is one of those tax strategies that looks simple in a blog post and gets tripped up in execution. The payroll setup, the source deduction math, the documentation discipline, and the TOSI rules all matter. We do the full setup for our family-business clients, run the ongoing payroll, file the T4s, and document everything for an audit defence if it ever comes up.
Get in touch with a short note about your business structure (sole prop or incorporated), your kids’ ages, and the work they would do. We respond within one business day with a fixed-fee quote that covers the payroll setup and the first year of filings. Full pricing on the pricing page.
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