Paying a Salary to a Shareholder/Director that does nothing?

Generally speaking, especially for family, you have to pay someone a fair and reasonable price for the work they do.

IE, you can't just pay your wife and kids a salary for the purpose of tax optimization if they aren't doing anything. Lots of info online about this.

This said, if you are all equal shareholders, or depending on how it is set up, you can pay them dividends.

I knew someone who paid her 1 year old daughter 80k a year because her face is the company logo.

Should be fine, doubt there will be a CRA audit for getting a salary from the company as long as the company pays some taxes

chaugh wrote: ↑ I knew someone who paid her 1 year old daughter 80k a year because her face is the company logo.

Should be fine, doubt there will be a CRA audit for getting a salary from the company as long as the company pays some taxes

Wow lol, is the CRA not strict on that rule? Anyone else with experience?

hybridfx2 wrote: ↑ Wow lol, is the CRA not strict on that rule? Anyone else with experience?

https://www.canada.ca/en/revenue-agency ... kling.html

chaugh wrote: ↑ I knew someone who paid her 1 year old daughter 80k a year because her face is the company logo.

Should be fine, doubt there will be a CRA audit for getting a salary from the company as long as the company pays some taxes

The 80k payable to the 1 yr old daughter may be considered as royalty, not salary that implies an employer-employee relationship. Your statement that as long as the company pays some taxes would make the payment deductible is incorrect. Before an expense can be deductible, it has to be laid out to business income, not captal, reasonable, etc. Whether the 80k payment is reasonable depends on factors like name recognition, fame and business of the daughter, annual revenue of the payee, etc.

Back to OP's question, a company cannot pay and deduct an expense (salary or otherwise) to anyone that does nothing for the company. However, a sharesholder is entitled to company dividends, and a director is entitled to director fees if s/he attends directors' meetings.

hybridfx2 wrote: ↑ Wow lol, is the CRA not strict on that rule? Anyone else with experience?

You can do whatever you want, until you get audited...

C

Michael4357 wrote: ↑ Hey there,

So my wife, my best friend and his wife started a business. My best friend and I will be active in the business and our wives are just equal Shareholders/Directors. They both have low salaries, are we able to just pay them whatever salary we want and not take salaries ourselves. Even though we are involved in the day to day and they are just passive investors? We are selling 100% products and have no retained earnings so we want to just pay a salary. I would think this is fine because considering they own half the company, they can pay themselves a salary for twiddling their thumbs if they want.

Is that correct?

Get an accountant... or start googling.