Hiring family members in your small business isn’t just a great way to keep things in-house, it can also offer some valuable tax advantages. That said, there are a few important rules to follow to ensure you’re staying compliant with Australian tax law.
Here’s a deep dive into the potential benefits and what to keep in mind before adding your spouse, kids, or other relatives to the payroll.
Why Hire Family Members?
Family-run businesses are a cornerstone of the Australian economy. Bringing family into your business can:
- Help build trust and loyalty within your team
- Offer flexibility and shared commitment to long-term success
- Reduce recruitment costs and onboarding time
But there’s more to it, smart structuring can also deliver tax efficiencies.
Key Tax Benefits
1. Income Splitting
Hiring a lower-income family member (such as a spouse or teenage child) may allow you to legitimately distribute income within the family, potentially reducing your overall household tax liability.
💡 Example: If you pay your spouse a market-rate wage, that income is taxed at their marginal rate, likely lower than yours, helping reduce your taxable income.
2. Superannuation Contributions
Wages paid to family members are treated just like any other employee wages. That means:
- You can claim deductions for superannuation contributions made on their behalf.
- These contributions may help build their retirement savings while lowering your taxable business income.
3. Deductions for Wages Paid
If the work is legitimate and the wages are reasonable:
- The ATO allows a tax deduction for wages paid to family members.
- This must be documented properly, including timesheets and employment agreements.
4. Youth Employment and Tax-Free Thresholds
Teenage children employed part-time can legally earn up to the tax-free threshold (currently $18,200) without paying income tax. If your business pays them under this threshold, they:
- Pay no tax personally
- Still receive super and are covered by Fair Work regulations
- Help reduce your taxable profit
Important Legal and Compliance Considerations
Before you put your spouse or kids on payroll, make sure you:
✅ Register them correctly as employees (not contractors)
✅ Pay at or above award rates and adhere to minimum entitlements
✅ Make super contributions (even if they’re family)
✅ Maintain proper records – timesheets, employment contracts, PAYG summaries
✅ Avoid artificial arrangements – don’t pay inflated wages for work not actually performed. The ATO closely monitors this.
Common Mistakes to Avoid
🚫 Cash payments without records
🚫 Paying family who don’t do any actual work
🚫 Claiming excessive or non-commercial wages
These issues can trigger an ATO audit or lead to deductions being disallowed.
Bottom Line: Family Can Be a Tax-Smart Asset
Hiring family members can be a strategic move, both financially and operationally. It’s a win-win when managed properly, with benefits including reduced tax, super contributions, and fostering family involvement in the business.
But the ATO expects transparency and fairness. If you’re unsure how to set this up or want to review your current arrangements, we’re here to help.
Need help hiring family the right way?
Get in touch with us at SWOT Accountants. We’ll guide you through the right structures, ensure compliance, and help you make the most of every deduction legally available to you. 📞 07-3286 2407