Can I Claim Staff Salaries and Wages as a Business Expense in Canada?
Fully deductible. Salaries, wages, bonuses, and reasonable allowances paid to employees for services rendered are deductible business expenses. The employer's share of CPP (5.95%) and EI (2.296%) are also deductible. Salaries paid to family members are deductible only if they are reasonable for the services performed.
What Canada Revenue Agency (CRA) says
CRA allows deduction of salaries and wages under Section 9 of the Income Tax Act as expenses incurred to earn business income. The salary must be actually paid in the year (not accrued and unpaid at year-end for related persons). Salaries to family members must be reasonable and documented. Excessive salaries paid to owner-family members may be recharacterised.
When you can claim
- Gross salaries and wages paid to arm's length employees
- Employer CPP contributions (5.95% on earnings up to YMPE)
- Employer EI premiums (2.296% on earnings up to maximum insurable earnings)
- Reasonable salaries paid to spouse or family members who genuinely work in the business
- Payroll-related costs including workers compensation premiums and employer health tax
When you cannot claim
- Salaries paid to family members that are unreasonably high for the work performed
- Dividends paid to shareholder-employees (dividends are not deductible; only genuine wages are)
- Owner's own drawings or distributions from an unincorporated business (these are profit, not a wage deduction)
- Salaries accrued but unpaid to related persons at the corporation's year-end (deductible only when paid)
Good to know
Pro tip: When paying family members, document the services performed and benchmark the salary against what an arm's length person would be paid for the same role. Keep records of hours worked and tasks completed to support the deduction if CRA queries it.
Related expenses
Stop guessing what you can claim in Canada
AccountsOS automatically categorises expenses with Canada Revenue Agency (CRA)-aware rules and tells you exactly what is claimable.
Try Free