The benefits of employing your spouse for Sole Proprietors and Family Businesses

Many of our clients are small family-owned businesses where one partner runs the day to day operations and performs the income earning tasks, and the other partner maintains the financial records, does the invoicing and payroll and chases up the unpaid debtors.  Often we find that neither partner takes a wage from the business for what they do.  In fact, depending on the structure of the business we advise that a wage is not always the best tax advantage where other factors are involved such as business profitability, the family assistance status of the husband or wife etcetera.

However we do want to point out that there are benefits to employing your spouse beyond what you see in your hip pocket on a weekly basis.  Here are three of them:

  1. Spouses or other family members that play an active role in your business can be classified as employees, and so be paid a wage or contract sum.  Family businesses are not subject to child labour laws so the "employing" of your under age children is possible, but they must be performing an actual job role that supports your income earning activities.
  2. Provided they have no other income, these employees can be paid up to $18,200 per year without incurring income tax - this may impact on your Family Assistance Part A or B payments, so seek specific advice to your situation.
  3. The business can achieve additional deductions by paying superannuation contributions on behalf of these employees.  The business receives a tax deduction on the full payment, and if the individual's adjusted taxable income is less than $37,000, their super fund will not have to deduct the 15% contributions tax.  This is especially valuable for people who are close to retirement age and looking to maximise their superannuation savings with effective tax planning.

There are many more benefits when you look at the bigger tax planning picture depending on your personal and family situation, whether you're just starting out in business with a young family or closing in on retirement with adult age children.  Talk to our advisors for specific advice regarding your situation.