Can my Ontario corporation pay a salary to my spouse, and what are the tax rules?

Your corporation can pay a salary to your spouse if your spouse actually performs services for the business. The salary must be reasonable — comparable to what you would pay an arm's-length employee for the same work. A salary for genuine services is a deductible corporate expense and income for your spouse, taxed at their personal marginal rate.

Unlike dividends, salaries paid for actual services performed are not subject to TOSI. The TOSI rules are specifically aimed at passive income splitting through dividends and interest. A properly structured salary to a spouse who genuinely works in the business is treated as employment income in the ordinary way, including CPP contributions and payroll remittance obligations.

The risk is overclaiming. Paying a spouse a high salary for minimal actual work will be questioned by the CRA, and amounts above what is reasonable for the work performed can be denied as a deduction. The spouse must also file a T4 and report the income. Documenting the spouse's duties, hours worked, and the going market rate for those duties is the best protection if the CRA reviews the arrangement. Salaries to family members for real work are legitimate; salaries as disguised dividends are not.