Reducing Income Tax By Hiring Your Child
Financial Management

Reducing Income Tax By Hiring Your Child

large business and finance

With the tax filing deadline closely approaching here, everyone is always on the lookout to try and find ways to reduce the amount of taxes that they owe in hopes to receive a large refund on their tax return. Investing in an RRSP, Registered Retirement Savings Plan, or deducting business expenses for self employed individuals are some of the more common ways to do so.

Just recently, I was told about a story about a lawyer who made a fairly decent amount of money a year and as a result he is placed in a higher tax bracket and is required to pay a lot of taxes. One day, his wife and himself had a new baby born into the world. Without much hesitation, he then shortly began to work out some details so that his newborn baby was now officially one of his company employees who would be receiving a salary. The newborn’s salary would come from the dad’s income and so what he did was pay his baby a specific amount of money so that the baby would have to pay a small amount of taxes and at the same time he had reduced his own personal income tax so that he was now placed in a lower income tax bracket. In the end, he paid less income tax and was able to keep more money for his family.

While I can’t confirm the legitimacy of this story, it’s one of those things that sound crazy enough to be true. However, I have read real scenarios where people do something similar such as company owners hiring their family and relatives to do a job while paying them a generous salary as a way to reduce their own personal income. Obviously though, anyone reading this should consult with a professional before trying anything like this. I just thought this was an interesting story to share with others.

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