Can I Pay My Spouse That Doesn’t Work In My Business?

Kelowna Accountant Ken Davidson Answers Your Questions

kelowna accountant

I’m sure I’m not the only Kelowna accountant who has been asked this question many times before and it’s not as cut and dry as you might think. As much as I would love to dive into relationship dynamics at the workplace, ahem, I’m going to maintain a perspective based on financial benefit to help you make a more informed decision rather than an emotional one.
If you have a spouse or partner that is not active in the business, please do not pay them wages. Wages are for people who are active in the business and I can’t stress the importance of retaining this attitude enough.

Paying Reasonable Salaries

You have to be paying reasonable salaries. If you’ve got someone who is not active in the business then you’ve got to ask,

“Is that salary reasonable?”

Of course not. Why would you pay somebody to not work in your company?

Be careful of heading down that road.

Some people’s spouses work in the company and they would like to pay them a wage and that’s completely fine…as long as it’s a reasonable wage for the function that the person is performing for the company.

Let’s say you and your spouse earn $100,000. You’re there 24/7, your spouse is their for a half an hour a week to fill the coffee machine and at the end of the year you want to split your wages 50/50. Paying your spouse $50,000 to perform that task is not a reasonable wage.

Related: Great Habits That Will Save You Money in 2012

How About Dividends?

The easier way around income splitting is to give dividends. The advantage of dividends is that they are paid to owners, not employees. As long as your spouse is an owner of the company, then they are able to receive dividends.

Related: 5 Questions to Ask Your Kelowna Accountant

Let’s go back to the same scenario of earning $100,000 but this time both you and your spouse are owners of the company. We can give them each $50,000 in dividends and they will pay less taxes than if we gave one spouse $100,000 dividend because our taxation system in Canada doesn’t work the same way for individuals that are married.

Does The Spouse Have To Be An Equal Partner?

kelowna accountantI can’t speak for any other Kelowna accountant but what I generally do for my clients is create a system that has shareholders owning different classes of shares and by doing that we can give out different distributions to the separate classes of shares. It’s very important that you don’t own the same class of share because that would restrict us, especially if your spouse has income from another source.

Obviously this subject can and will have many variable outcomes so I want to hand you the microphone and hear what your opinion is on the matter…

What do you feel is the best way to handle paying a spouse that is involved in your business? Let me know in the comments below.

Have a question for me? Let me know in the comments and I will be sure to answer in an upcoming blog post!

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