Paying Your Children From Your Business
How to pay your kids from the business properly: reasonable wages, payroll, CPP at 18, and the kiddie tax.
The short version
- You can deduct wages paid to your children if the work is necessary for the business and the pay is reasonable for their age and the job.
- Pay them like any employee: through payroll, into their own account or by cheque, with a T4 slip. Allowances and pocket money aren't deductible.
- A child with no other income pays no income tax on wages up to the basic personal amount ($16,452 federally for 2026), and no CPP until they turn 18.
- The wages give your child RRSP room (18% of earned income) and, once they're adults, real work experience on paper.
- Dividends to children under 18 from a family corporation are taxed at the top rate under the tax on split income. Wages for real work are the clean route.
Paying Your Children From Your Business
Every small business owner's kid has done some work for the business: folding flyers, sweeping the shop, carrying lumber, posting on Instagram. Paying them for it can move income from your top bracket to a child who pays no tax at all. CRA allows it, under the same conditions as any other employee, plus one more: the pay has to make sense for the child's age. A 9-year-old "marketing manager" on $25,000 is how this strategy ends up in an audit.
What CRA Requires
| Requirement | What it looks like in practice |
|---|---|
| Work necessary to earn business income | Cleaning the shop, filing, inventory counts, social media, shipping, site cleanup, reception |
| Pay reasonable for the child's age and the work | Close to what you'd pay an unrelated teenager or student for the same job and hours |
| Actually paid | Cheque or transfer to the child's own account, or cash with a signed receipt |
| Reported | Payroll account, deductions where required, T4 slip and summary |
| Not deductible | Allowances, gifts, and room and board you provide to dependent children |
Keep a simple log: dates, hours and tasks. It takes five minutes a week and answers the first three questions a CRA reviewer will ask.
The Numbers
| Ontario, 2026: owner with $100,000 of business profit hires a 16-year-old | Amount |
|---|---|
| Wages paid for summer and weekend work | $12,000 |
| Owner's income tax saved by the deduction | about $3,560 |
| Child's income tax | $0 (below the basic personal amount) |
| CPP | $0 (no CPP before age 18) |
| RRSP room the child earns for next year | $2,160 |
The money now belongs to your child. Spending it on things you'd buy anyway (their phone, their clothes, their share of a school trip) is between you and your teenager; spending it on your own groceries isn't the idea. Many families put part of it into the child's RRSP later, or into an RESP or savings.
What can I reasonably pay my kids?
Tell the assistant your business, your children's ages and the work they do. It suggests a reasonable wage range, estimates your tax saving, and lists the payroll steps and records you need.
Payroll for Kids
- Income tax: withhold based on the child's TD1 form. With no other income, usually little or nothing is withheld.
- CPP: not deducted before the month after the child turns 18.
- EI: employment by a related employer is often not insurable, unless the pay and terms are what you'd give an unrelated worker. EI has no age limit, so if the job is insurable, EI applies to a 15-year-old too. Ask CRA for a ruling if you're unsure.
- T4: issue one by the end of February. The T4 is what makes the RRSP room appear for your child.
Ontario's employment standards also have minimum ages for some kinds of work (for example, construction and factories); check them before putting a young teen on a job site.
Corporations and the Kiddie Tax
Dividends paid to children under 18 from a private corporation (directly or through a trust) are caught by the tax on split income and taxed at the top marginal rate, whatever the child's other income. For adult children aged 18 to 24, TOSI also usually applies unless they actively work in the business (generally 20 hours a week on average) or another exception fits. Reasonable wages for real work avoid all of this. See small business taxes. How the rest of the family's pay compares is on salary vs dividends.
Where It Goes on Your Return
Sole proprietors deduct children's wages and the employer's share of any CPP or EI on line 9060 of form T2125. Your child files their own return (worth doing even with zero tax, to record the RRSP room and to start their file with CRA); see do I have to file a tax return? and the T4 slip explained. Paying your spouse follows the same rules; see hiring your spouse. All of it depends on good records; see business recordkeeping requirements.
Rules of Thumb
- Write a short job description and an hourly rate for each child.
- Pay at least monthly, into the child's own account.
- Keep the hours log with your payroll records for six years.
- Don't pay for chores you'd expect anyway; pay for business work.
- Scale pay to age: the 8-year-old gets less than the 17-year-old, and both get less than an adult professional.
Before you file, Return Check flags family wages without matching payroll records.
Paying Your Children Questions
Can I pay my kids from my business in Canada?
Yes, if the work is necessary for the business, the pay is reasonable for the child’s age and the work, and you actually pay them and report it on a T4.
Do I deduct CPP from my child’s wages?
Not before the child turns 18. CPP contributions start the month after an employee’s 18th birthday.
Does my child pay tax on wages from my business?
Only if their total income is above their personal amounts. For 2026, the federal basic personal amount is $16,452, so a child with no other income usually pays little or no tax.
Do I need to issue a T4 to my child?
Yes. Wages paid to your children are reported on T4 slips like any other employee’s.
Can my corporation pay dividends to my children?
Dividends to children under 18 are taxed at the top rate under the tax on split income. Reasonable wages for real work are usually the better route.
Sources: CRA, Line 9060 Salaries, wages and benefits; Employee who is a family member or a related person; Income sprinkling FAQ. Checked October 2026. The saving comes from our 2026 Ontario rules engine. What counts as reasonable pay for a child depends on the facts; there's no published CRA scale.
Last reviewed October 5, 2026 against CRA and Government of Canada sources. How we check our facts.