If you are hiring family members over the age of 25 you may need to justify that the payments, you have made are reasonable in order to avoid a Tax on Split Income or TOSI. Specifically, according to the CRA, the reasonableness of an amount paid to your family member will be evaluated based on one or more of the following criteria:
Excerpted from the Advanced Payroll Course from Knowledge Bureau; available until March 31 for $200 off the regular tuition fees.
AUDIT PROOFING CHECKLIST. Be prepared to justify the contributions made to the business by your family members as follows:
A Reasonable Labour Contribution – Describe:
Property Contribution – Describe:
Risk Assumption – Describe:
Finally, Total Amounts Paid
In determining whether a payment received by the individual exceeds a reasonable amount, CRA will also take into account amounts previously paid to the individual, including any payment of any kind (including salary or other remuneration or compensation, dividends, interest, proceeds, and fees), benefits, and deemed payments.
Bottom Line: Whether this passes an audit test will be based on the facts and circumstances of each case. What an auditor can look for is significantly detailed, and so it serves all employers well to have a detailed contract of employment, role descriptions and detailed CVs or resumes for every family member who works in the business.