Whether you're incorporated or a sole proprietor, paying your kids for actual work shifts taxable income from your high bracket to their low (or zero) bracket. The family keeps the money, but the tax bill drops.
Why This Works so Well
In 2025, the basic personal amount (the amount you can earn before paying any federal tax) is $16,129. Provincial amounts vary, but in Ontario it's about $11,865.
That means your child can earn roughly $16,000 before any federal tax kicks in. If you're in a 48% marginal bracket, every dollar you shift to your child (who pays 0%) saves nearly 48 cents in tax.
Pay a child $15,000 for legitimate work over the year? That's about $7,200 in family tax savings.
The Rules You Need to Follow
CRA isn't going to let you pay your 6-year-old $50,000 to "help around the office." There are real rules:
1. the Work Must Be Real
Your kids need to actually do work for the business. Reasonable jobs include:
- Packing and shipping orders
- Data entry and admin tasks
- Social media management
- Cleaning the office or workspace
- Photography for product listings
- Answering phones or emails
- Inventory counting
The work needs to be age-appropriate. A 12-year-old can pack boxes. They probably shouldn't be doing your bookkeeping.
2. the Pay Must Be Reasonable
You need to pay what you'd pay any other person for the same work. If the going rate for packing boxes is $16/hour, don't pay your kid $45/hour. CRA will look at what a comparable employee would earn for the same role and skill level.
A good test: would you pay a stranger this amount for this work? If yes, you're fine.
3. Document Everything
Treat your child like any other employee:
- Track their hours. Use a simple timesheet or app. Record date, hours worked, and tasks performed.
- Keep a job description. Write down what they do. It doesn't need to be formal, just clear.
- Pay them properly. Write a cheque or do an e-transfer. Don't pay cash with no record. CRA wants a paper trail.
- Pay on a regular schedule. Weekly, biweekly, or monthly. Not a random lump sum at year-end.
4. Set Up Payroll with CRA
If you're paying salary (which you should be for kids), you need a payroll account with CRA. This means:
- Register for a payroll account (RP number) through My Business Account
- Calculate deductions: income tax, CPP (if they're over 18 and earning above the CPP exemption)
- Remit deductions to CRA on time. Late remittances get hit with penalties fast.
- Issue a T4 at year-end
If your child earns below the basic personal amount, their income tax deduction at source will be zero. But you still need to run payroll and file the T4.
Kids Under 18 vs. Over 18
Under 18
- Salary is fine. Pay them for real work at a reasonable rate. No issues.
- No CPP required if they're under 18.
- Don't pay dividends. The Tax on Split Income (TOSI) rules will tax dividends to minors at the top marginal rate. That defeats the entire purpose.
- EI exemption. If they're a family member (parent-child relationship) and you wouldn't deal with them at arm's length, EI premiums may not apply. Check the specific rules for your province.
Over 18
- Salary still works great. Same rules apply. Real work, reasonable pay, proper documentation.
- CPP applies once they earn above the basic exemption ($3,500).
- Dividends are possible but complicated. TOSI rules still apply unless the adult child is actively involved in the business (generally 20+ hours/week on a regular basis). If they qualify for a TOSI exclusion, dividends can be tax-efficient. If they don't qualify, the dividends get taxed at the highest marginal rate. Talk to your accountant before going this route.
- RRSP room. Salary creates RRSP contribution room for the following year. This is a great long-term wealth-building strategy for your kids.
Real Example: What We Did for a Client Last Week
A client came in with two teenagers, ages 15 and 17, who help pack Amazon FBA shipments on weekends and after school. Here's what we set up:
Child 1 (age 15):
- Role: Packing and labeling
- Hours/week: 6 hours
- Rate: $16/hour
- Annual salary: about $4,800
- Income tax: $0
- CPP: $0 (under 18)
- Tax savings for parent (48% bracket): $2,304
Child 2 (age 17):
- Role: