What you pay the people who work for you is a business expense, and so is the employer's share of what comes off their pay. On Form T2125, it goes on line 9060, Salaries, wages, and benefits (including employer's contributions).
What belongs here
- gross salaries and other benefits you pay to employees
- your part of the Canada Pension Plan (CPP) or Quebec Pension Plan (QPP) contributions, employment insurance (EI) premiums, provincial parental insurance plan premiums, and workers' compensation amounts payable on employees' pay
- premiums you pay for an employee for a sickness, an accident, a disability, or an income insurance plan
What does not belong here
Your own pay. Salaries or drawings paid or payable to you or your partners are not deductible. They are drawings, and they belong in the drawings part of the form, not among your expenses.
Direct wage costs and subcontracts. Wages that go into making the goods you sell are part of cost of goods sold, and subcontracted work has its own line there. Both sit in Part 3 rather than here.
Board and lodging for your own family. You cannot claim as an expense the value of board and lodging you provide to your dependent children and your spouse or common-law partner.
Paying your child, spouse, or common-law partner
You can deduct the salary you pay to your child, as long as you meet all of these conditions:
- you pay the salary
- the work your child does is necessary for earning business or professional income
- the salary is reasonable when you consider your child's age, and the amount you pay is what you would pay someone else
The same rules apply to a salary you pay your spouse or common-law partner. Report these salaries on T4 slips, the same as you would for any other employee.
Instead of cash, you can pay your child with a product from your business. When you do, claim the value of the product as an expense and add an equal amount to your gross sales. Your child has to include the value of the product in their income.
What to keep
Keep documents to support the salary you pay a family member. If you pay by cheque, keep the cancelled cheque; if you pay cash, have the person sign a receipt.
For everyone on the payroll, keep the payroll records behind the totals on this line — what was paid, what was withheld, and your employer contributions — along with the T4 slips you issued. Guide RC4120 sets out what the slips have to show.
Don't send them in with your return. Keep them in case the Canada Revenue Agency (CRA) asks to see them. Business records follow the same six-year retention rule as your personal documents.
Official CRA sources
- Line 9060 – Salaries, wages, and benefits (including employer's contributions)
- Guide RC4120, Employers' Guide – Filing the T4 Slip and Summary
Source: Canada Revenue Agency (canada.ca). Not tax advice.