Parenting & Family

SLASH YOUR NANNY COSTS !! (I hope?)

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  • Apr 3rd, 2008 8:11 pm
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Member
Aug 16, 2007
228 posts
47 upvotes

SLASH YOUR NANNY COSTS !! (I hope?)

We are getting a nanny; we will pay her such that her TAKE-HOME is $10/hr ($800 every two weeks), and we will pay all taxes, CPP, EI, and WSIB.

Here's my calculation of what my TOTAL OUTLAY is (I'll call this METHOD "A"):
[INDENT]1) I repeatedly plugged salaries into CRA's Payroll Deductions Calculator (http://www.cra-arc.gc.ca/eservices/tax/ ... oc-e.html), until I found that a salary of $983 gave a takehome of $800, and required a remittance to CRA of $250.
2) WSIB premium is $2.83/$100 of earnings (rategroup 944). (Incidentally, Based on the rate, a nanny taking care of your baby in your living room is more dangerous than working on mining machinery (2.68/100, group411) or working in a steel mill ($2.40, group352) . Thanks wsib! Ya Boneheads!). So wsib cost is $983 x .0283 = $27.84.

So TOTAL OUTLAY = (800 + 250 + 27.84) x 26weeks = $28,024 per year. Ouch.

If anyone can verify my methodology here, I'd appreciate it!!!
[/INDENT]

Now, how do we reduce Total Outlay, but nanny still has $10/hr take-home??? MY IDEA (I'll call this METHOD "B"):
[INDENT]Myself and my spouse each hire the nanny separately, for 20 hours per week each. Each of us separately remits the required amounts to CRA. Since wsib only applies to an employee you hire for more than 24hrs/week, the wsib premium disappears completely. Again, using CRA calculator, TOTAL OUTLAY per spouse = $11593.50
So TOTAL OUTLAY of the family is $23,187. Almost $5k savings!!!

However, come April of the following year, the nanny will owe $2653 in taxes (according to quicktax 06), which we'd have to give her as a (fully taxable) bonus. This'll push up our total outlay in that year to: $26,688. Which is $1336 savings.
[/INDENT]


So to summarize TOTAL YEARLY FAMILY OUTLAYS:

Code: Select all

            METHOD"A"       METHOD"B"      Savings using "B" instead of "A"
Year 1      $28,024           $23,187             $4837
Year 2      $28,024           $26,688             $1336
Subsequent years will be similar to Year2
So... is Method "B" viable? Anyone tried it? Anyone know of CRA rules against it?
9 replies
Deal Fanatic
User avatar
Feb 3, 2005
5295 posts
1266 upvotes
Georgetown
Interesting thought process.

I think you messed up your second calculation though (although the nanny may not notice the error and you could essentially "scam" the nanny).

The only money I would think you can save is the WSIB amount - which works out to 700 and some odd dollars. It also requires you splitting the nannies hours each week - obviously just a superficial "book cooking" exercise. The CRA may have rules against it but I wouldn't know.

The main issue with your Method B is that you are giving the nanny a "fully taxable bonus" for the amount of taxes she would own on the money earned from you. You are failing to take in to account that this bonus would be "fully taxable". The nanny would actually have to pay more taxes on the bonus - meaning you haven't really covered the nannies tax bill fully.

You will also want to make sure you are using the appropriate years tax rates as they can change from year to year - using the 2007 tax rates for income that will be earned in 2008 wouldn't necessarily come out the same, etc.

It doesn't sound like you can really impact the amount you are paying the nany very much if you are trying to hit the $10/hr take home level.
Member
Aug 16, 2007
228 posts
47 upvotes
Tiberius wrote: Interesting thought process.

I think you messed up your second calculation though (although the nanny may not notice the error and you could essentially "scam" the nanny).

The only money I would think you can save is the WSIB amount - which works out to 700 and some odd dollars. It also requires you splitting the nannies hours each week - obviously just a superficial "book cooking" exercise. The CRA may have rules against it but I wouldn't know.

The main issue with your Method B is that you are giving the nanny a "fully taxable bonus" for the amount of taxes she would own on the money earned from you. You are failing to take in to account that this bonus would be "fully taxable". The nanny would actually have to pay more taxes on the bonus - meaning you haven't really covered the nannies tax bill fully.

You will also want to make sure you are using the appropriate years tax rates as they can change from year to year - using the 2007 tax rates for income that will be earned in 2008 wouldn't necessarily come out the same, etc.

It doesn't sound like you can really impact the amount you are paying the nany very much if you are trying to hit the $10/hr take home level.
- Can you point out where the calculation is messed up?
- I did take the "fully taxable" bonus into account - that is why year2 savings are not as good as Year1.
- There shall be no scamming of the nanny!
- Nobody knows future years' tax rates; that's why I just used 2006 rates across the board. I predict that future years will still have the same "exponential-ish" "the-more-you-make-the-bigger-the-percentage-we-take" scheme we have today, which is the whole basis on why Method B works.
Deal Addict
May 6, 2003
1047 posts
20 upvotes
I am no expert on WSIB, but it might be worth looking into whether since you and your wife are "related", the WSIB might consider you to be associated or related employers for purposes of counting the 24/hours per week.
Sr. Member
Jun 27, 2004
861 posts
41 upvotes
Kitchener
The calculations may be correct (I'd didn't grab my calculator) but this doesn't work. From section 944 of the WSIB site, you fall under one of these two given scopes:

1) [General - my title!]

Business activities include the employment of domestic workers by private householders for the purpose of operating and maintaining the household. A private householder who employs a domestic worker for more than 24 hours a week must register as an employer of domestic workers with the WSIB.


2) Shared Employment

Shared employment is considered by the WSIB to mean employment of a domestic worker by two or more households where duties are carried out for more than one household at the same time.

If the shared employment is more than 24 hours a week in total, the parties to the shared employment are considered an employer and must register with the WSIB under a single account. For an example, please see 12-04-14, Domestic Workers, in the Operational Policy Manual.


Either you and your wife fall under a single "householder", or you are providing shared employment.

Good thinking though!

Brendon
Sr. Member
Jun 27, 2004
861 posts
41 upvotes
Kitchener
Alvito wrote: hire two separate nannies.

1 for M W F
1 for T TH

Split payment that way.
According to the #2 I referenced, wouldn't this simply be "shared employment"? Unless you can find 2 nannies that only want to work 24 & 16 hours per week respectively (presumably, they'll fill their time with someone else doing the same arrangement and you wind up with shared employment).

Brendon
Member
Aug 16, 2007
228 posts
47 upvotes
brendonp wrote: 2) Shared Employment

Shared employment is considered by the WSIB to mean employment of a domestic worker by two or more households where duties are carried out for more than one household at the same time.

If the shared employment is more than 24 hours a week in total, the parties to the shared employment are considered an employer and must register with the WSIB under a single account. For an example, please see 12-04-14, Domestic Workers, in the Operational Policy Manual.[/I]

Brendon
A nanny is "shared" ONLY if the nanny babysits your kids and the other employer's kids at the same time (ie. both sets of kids are physically in the same room at the same time). See http://www.wsib.on.ca/wsib/wopm.nsf/Pub ... Guidelines
I'm guessing they put this in to close a loophole - a loophole I'm trying to weasle through.

So hiring two nannies would legally work. Logistically though, it's a no-go.

But I still don't know whether the nanny would be considered "shared" between me and my spouse, since only 1 child is involved. I tried to look up the actual legislation, but it's non-specific.
Member
Dec 27, 2007
460 posts
47 upvotes
Aurora
Wow $10 dollars an hour for someone to raise you child for you?
Sr. Member
Jun 27, 2004
861 posts
41 upvotes
Kitchener
frogblender wrote: A nanny is "shared" ONLY if the nanny babysits your kids and the other employer's kids at the same time (ie. both sets of kids are physically in the same room at the same time). See http://www.wsib.on.ca/wsib/wopm.nsf/Pub ... Guidelines
I'm guessing they put this in to close a loophole - a loophole I'm trying to weasle through.

So hiring two nannies would legally work. Logistically though, it's a no-go.

But I still don't know whether the nanny would be considered "shared" between me and my spouse, since only 1 child is involved. I tried to look up the actual legislation, but it's non-specific.
The example I saw showed both families sharing the nanny for only 6 of the 27 (?) hours per week, the rest of time (s)he was working for one or the other - I assume that this is the one you linked. In your case, I think that the single child indicates "sharing". I would think that situation #1 applies to your more then #2, however -> you and your wife are probably the "householder", and thus consider a single employer. If you are thinking of trying it, you and your wife should probably not have a joint bank account; otherwise it's effectively game over - if you maintain two completely seperate paper trails (from income through to payment), you might slip through.

If you want to take the idea a little further, you could probably find someone else with a nanny and split the payments with them - Ie, you each pay 50% of each nanny each week (assuming that you never pay for more then 23 hours of each nanny, limiting you to 46 hours total - unless you split with 3 nannies!) - thus your payments are going to two separate people at two different addresses looking after two different children . It still sounds pretty sketchy to me - if the WSIB functions at all like the CCRA, it certainly won't work!

Cheers,

Brendon

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