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Good family business bookkeeping starts with one rule: treat relatives like any other staff. Pay them what you’d pay a stranger for the same work, run it through payroll, and keep the proof. The CRA’s own guidance on salaries for a spouse or child asks for exactly that.
Why does a family business need stricter books?
Because nobody questions a cheque to your sister until the CRA does. In an ordinary company, an employee’s pay is backed by a contract, a timesheet and a boss who doesn’t much care about the employee’s feelings. In a family firm, all of that can go missing, and the paperwork is what separates a deductible wage from a gift.
So build the habits early. One bank account for the business, no groceries from it. One person who enters transactions, and a different one who looks at the monthly report. If there are only two of you, swap roles each month. It sounds fussy. It’s also how you catch a double payment before the money is gone.
How do you pay family members properly?
Put them on payroll. The CRA says to report salaries paid to your children and to your spouse or common-law partner on T4 slips, the same as for other employees. It also says the pay has to be reasonable for the child’s age and for what you’d pay someone else.
Keep the evidence. If you pay by cheque, hold on to the cancelled cheque. If you pay cash, have the person sign a receipt. Room and board you give a dependent child or your spouse isn’t a business expense, so don’t book it as one.
Here’s what payroll costs in a plain case. A family member paid $1,500 every two weeks in Ontario has about $266.72 held back for tax, CPP and EI. The business adds about $115.47, and sends the CRA about $382.19 per pay period, going by the 2026 figures in the payroll remittance calculator. The take-home pay calculator shows what lands in their account.
What records should the family keep?
| Item | Rule or figure |
|---|---|
| Retention period | Six years from the end of the last tax year the record relates to |
| Storage place | Your place of business or home in Canada, unless the CRA gives written permission |
| Pay to a child or spouse | Report on a T4, keep the cheque or a signed cash receipt |
| Board and lodging for a spouse or dependent child | Not a deductible expense |
| GST/HST small supplier limit | $30,000 of taxable sales, counting you and your associates |
Electronic copies are fine, and many families scan receipts on the day. Just check where the scans are stored. If the files sit on a server outside Canada, the CRA needs copies available in Canada that are readable and show enough detail to support your returns.
Where do family businesses usually go wrong?
The first slip is blurred lines. The van is used for deliveries and for the kids’ hockey, and the mileage was never logged. The second is cash in a drawer that never reaches the ledger. Anything you can’t prove is a problem you’ll have to explain later, usually to someone who has never met your family and doesn’t plan to give you the benefit of the doubt.
The third is paying a relative far more than the job is worth. The CRA can refuse the deduction for the part that isn’t reasonable, and the relative still has taxable income. We couldn’t find a fixed dollar cap anywhere, so don’t trust anyone who quotes one.
A fourth is missing the GST/HST line. The $30,000 limit counts the sales of you and your associates, so a spouse’s side business can matter. Use the GST/HST calculator to split a total into sale and tax. And if you run the business as a sole proprietor and pay yourself nothing formally, the self-employed tax calculator gives a rough picture, though it leaves out EI.
How often should you close the books?
Monthly.
Reconcile the bank, match the receipts, and file a copy of the report. It takes an hour when you do it every month, and a weekend when you wait until tax season.
Pick software that lets you export everything. Family members come and go, accountants change, and you don’t want your history stuck in a tool you’ve left. We can’t rank products, so judge each one by that export and by whether it handles payroll and sales tax the way you need.
Where the numbers come from
The salary and record rules come from the Canada Revenue Agency’s guidance on business expenses and on keeping records. The GST/HST limit is on the CRA page about when to register. Payroll figures use the 2026 CPP and EI limits in our calculators, which are estimates and not a substitute for the CRA’s own payroll tables. We haven’t confirmed how the CRA tests unreasonable pay beyond the wording quoted above.
Frequently asked questions
Can I deduct wages paid to my spouse or child?
Yes, if the pay is reasonable for the work and for the child's age, and you run it like any other salary. Report it on a T4.
What proof do I need for pay to a relative?
The CRA says to keep the cancelled cheque if you pay by cheque, or a signed receipt if you pay cash.
Can I deduct the room and board I give my child?
No. The CRA says board and lodging for a dependent child or spouse isn't a business expense.
How long should the family keep business records?
Six years from the end of the last tax year the records relate to, unless the CRA gives permission to destroy them earlier.
Does a spouse's business count toward the GST/HST limit?
The $30,000 small supplier test counts the revenues of your businesses and those of your associates, so it can.
- Self-employed taxes in Canada: income, CPP and GST
How tax works when you are self-employed in Canada: reporting income and expenses, paying both halves of CPP, instalments and when to register for GST
Information only. This page is general information, not tax, legal or accounting advice. Tax-Services.ca is an independent publisher: we don't prepare or file tax returns or offer tax services, and we have no connection with the CRA, Revenu Québec, any government or any company named on this page. Check the figures that matter with an official source or a qualified professional.