Ask an Expert
Starting a business
Expert: Kerry Butler
Dave asked:
I am looking at starting a Sole Proprietorship business. Both my wife and kids (in time) will provide the labour to run the business, how can I pay them without following the typical payroll scenario? Am I required to register with the WSIB?
Kerry Butler answered:
Employing your spouse or children in a sole proprietorship does not entitle a taxpayer to ignore the tax laws with respect to withholding income and CPP. In fact, the employment of related individuals carries a greater burden to the sole proprietor.
On top of withholding income tax, CPP and possibly EI (depending on the facts of the employment) the sole proprietor must also justify the reasonableness of the wage paid to a spouse or child with respect to the work performed by them. If the wage was deemed by Canada Revenue Agency to be excessive, the deduction for these wages could be denied to the sole proprietor.
The deduction of EI from the wages to a spouse or child will depend on whether it would be seen as the spouse or child were treated differently in their employment when compared to other non-related employees of the business. It is best to get an EI ruling from Canada Revenue Agency in advance to ensure that a taxpayer makes the right decision as to whether to deduct and remit EI on these wages.
The payment of WSIB on the wages to a spouse or child by a sole proprietor is often still required. Wages paid to executive directors of a business can be exempt from WSIB but to avoid any unwanted surprises it would be prudent to request a WSIB ruling with respect to wages paid to a spouse or child. In some case, even if a person could be exempt from WSIB it may be in their best interests to voluntarily pay WSIB on their wages. To voluntarily register the business and the individual must complete the required WSIB forms to effect coverage.
About the author
Kerry Butler, is a C.A. for Collins Barrow, Chartered Accountants.
Kerry's bio can be seen at: http://www.collinsbarrow.com/partnerprofile.asp?partnerID=20.