It’s common for physicians to employ their family members (kids or spouse) in their practice. The main benefit of this approach is the tax savings because the children or the spouse are taxed at a lower rate as compared to the doctor.
Keep in mind that the amounts paid to the family members need to be “reasonable” for the services provided. The Canada Revenue Agency (CRA) can review these salaries to determine their “reasonableness”.
While there are no hard and fast rules regarding what amount of salary is appropriate, consider the following before remunerating family members.
1. Types of Tasks Performed
Salaries should correspond to the tasks performed by the family member, the skills required and the number of hours spent in performing these tasks.
Some common examples of the types of duties which family members might perform include administrative, secretarial, billing, accounting, payroll or bookkeeping etc.
Naturally, this will vary between different types of practices and will also depend on the degree of support provided by the hospital or clinic.
2. The Concept of Competitive Wage
This means that any salaries received by the family members should be similar to what the practice would pay an employee when they are doing the same tasks.
If family members are working on a full-time basis then they should be getting salaries accordingly. Smaller salaries can be justified if family members are working on a part-time basis.
When employing family members, be sure to keep all the necessary paperwork in order. This includes timesheets, employment contracts, T4’s, detailed job descriptions and proof showing that payments were deposited in the family members bank account.
If the CRA decides to review your payroll, they will most likely ask for the following information.
- Were the wages earned by the family member paid to them and were they reported as income.
- Description of the work done by the family member.
- Reasonable cost of the work and estimate of the time needed to do the work.