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For business owners in Australia, hiring your children can be a smart way to instil financial responsibility while also creating legitimate tax benefits. By employing your kids in your business, you can legally shift taxable income to them, potentially lowering your overall tax burden while keeping money within the family. However, the Australian Taxation Office (ATO) has strict rules to ensure payments are legitimate and comply with tax laws.
In this guide, we’ll explore how you can legally pay your children through your business, the tax benefits involved, and the compliance requirements you need to follow to stay within the law.
Understanding the Legal Framework
Paying your children for work in your business is entirely legal—as long as it meets ATO requirements. The key is ensuring that their work is genuine, their pay is reasonable, and all tax and superannuation obligations are met.
Q: Can I just put my kids on the payroll to lower my taxes?
A: No. The ATO requires that any payments made to children are for actual work performed, at market rates, and fully documented.
Key ATO Requirements:
✅ The child must be performing legitimate work for the business.
✅ Payments must be at a reasonable market rate for the tasks performed.
✅ All payments must be properly recorded through payroll or invoices.
✅ The business must comply with employment laws, including superannuation and workplace safety requirements.
✅ Tax deductions can only be claimed for payments made in line with these rules.
If these conditions are met, paying your children through your business can result in significant tax savings by shifting income from a higher tax bracket (yours) to a lower one (theirs).
Tax Benefits of Paying Your Kids
By employing your children in your business, you can lower your taxable income while also providing them with valuable work experience and financial skills. Here’s how it works:
1. Income Splitting
Australia has a progressive tax system, meaning that individuals pay higher tax rates as their income increases. By shifting income to your children (who likely earn less overall), you can legally reduce the total tax paid by your family.
Example:
- You’re in the 45% tax bracket, earning over $180,000 per year.
- Your child, aged 16, works part-time in your business and earns $18,200 per year.
- Because the tax-free threshold is $18,200, they pay zero tax on their earnings, whereas you would have paid 45% on that income.
2. Tax-Deductible Wages
As long as your child’s salary is for legitimate work and at a reasonable market rate, their wages are a tax-deductible expense for your business. This means that instead of paying yourself and being taxed at your higher rate, you can allocate part of your earnings to your child at a lower tax rate.
Q: How much can I pay my child tax-free?
A: If your child earns $18,200 or less per year, they won’t pay any income tax under the tax-free threshold. However, you must ensure that their wages reflect actual work done.
3. Superannuation Contributions
If your child works for your business, you’re generally required to pay Superannuation Guarantee (SG) contributions on their ordinary earnings — regardless of how much they earn per month.
Note: If your child is under 18, super contributions are only required if they work more than 30 hours in a week.
Paying super for your child is a great way to kickstart their retirement savings early, and as an added bonus, these contributions are tax-deductible for your business.
Q: Can I pay my child and contribute to their superannuation?
A: Yes. If your child meets the work requirements (e.g. over 30 hours a week if under 18), your business must pay the Super Guarantee (currently 11.5%), and this is fully tax-deductible.
4. GST & Payroll Tax Benefits
- GST: If your business is GST-registered, wages paid to employees (including your child) are not subject to GST, reducing the overall tax burden.
- Payroll Tax: If you own a larger business, paying wages to family members may help manage your total payroll tax liability, as some states have exemptions for family businesses.
What Jobs Can Your Kids Legally Do?
Your child’s work should be appropriate for their age, skills, and your business type. Some common legitimate roles include:
✅ Office work (data entry, filing, answering calls)
✅ Social media management (content creation, posting)
✅ Marketing assistance (flyer distribution, photography)
✅ Cleaning and maintenance of business premises
✅ Packing and shipping products
✅ Assisting with bookkeeping (if trained and capable)
Q: What if my child is too young to work?
A: Australian child employment laws vary by state, but most allow children to work in a family business from a young age. However, they must be doing age-appropriate work and comply with child labour laws.
State-specific example:
- NSW: No minimum age for working in a family business (if safe and appropriate).
- VIC: Minimum age 11 years for delivery work and 13 years for other work unless in a family business.
- QLD: No minimum age for working in a family business, provided work is safe.
Check local employment laws to ensure compliance.
How to Properly Pay Your Kids & Stay ATO-Compliant
To legally pay your kids and ensure full compliance with tax laws, follow these steps:
1. Ensure Genuine Employment
Your child must be genuinely employed in your business, with a proper role, responsibilities, and a fair wage.
2. Pay at Market Rates
Wages should align with what you would pay a non-family member for the same work. Underpaying or overpaying can trigger ATO scrutiny.
3. Register for PAYG Withholding (if required)
If you’re paying wages, you may need to withhold Pay As You Go (PAYG) tax and report it to the ATO.
4. Use Payroll and Keep Proper Records
Record payments through proper payroll software or accounting systems. Keep records of:
✅ Payslips and employment contracts
✅ Work logs or timesheets
✅ Bank transfers (avoid cash payments)
5. Meet Superannuation Requirements
You must pay Superannuation Guarantee (SG) contributions into a registered super fund for your child regardless of how much they earn — unless they’re under 18, in which case super is only required if they work more than 30 hours in a week.
Make sure contributions are paid on time and to a complying super fund to remain compliant and claim the deduction.
6. Lodge Tax Returns (if applicable)
Even if your child’s income is below the tax-free threshold, they may need to lodge a return if they have other taxable income or claim deductions.
Avoiding Common Mistakes
🚫 Paying a salary without actual work
- The ATO will reject deductions if no genuine work was performed.
🚫 Overpaying wages
- Paying your child an inflated salary can trigger an ATO audit.
🚫 Cash payments with no records
- Always pay via bank transfer and issue payslips to maintain compliance.
🚫 Using your child’s earnings for personal expenses
- Once paid, the money belongs to your child and should be used as they see fit.
Frequently Asked Questions (FAQ)
Q: Can I pay my child if they are under 18?
A: Yes, as long as they are doing legitimate work and are paid appropriately.
Q: What if my child is a full-time student?
A: If they work part-time in your business and earn under the tax-free threshold ($18,200), they likely won’t owe tax.
Q: Can I give my child business shares instead of wages?
A: Gifting shares can have tax implications, including CGT. Seek professional advice before doing so.
Q: How can I maximise tax savings while staying compliant?
A: Ensure payments are reasonable, documented, and legally structured. Consulting a tax adviser can help optimise your approach.
Partner with Our Experts to Optimise Your Tax Strategy
At Latitude Accountants, we specialise in helping business owners navigate tax laws while maximising legitimate deductions. Whether you’re looking to hire your children, optimise payroll structures, or reduce your overall tax burden, we provide expert guidance tailored to your business needs.
Let’s work together to ensure you stay compliant, save on taxes, and build financial security for your family. Contact us today for a consultation and take control of your business tax strategy.
📞 Contact Latitude Accountants
📧 info@latitudeaccountants.com.au
🌐 www.latitudeaccountants.com.au
Disclaimer
The information provided in this guide is for general informational and educational purposes only and does not constitute legal, tax, or accounting advice. Tax laws and regulations can change, and there may be state-specific variations that affect your circumstances. Before taking any action, please consult with a qualified professional. Latitude Accountants accepts no liability for any loss or damage incurred as a result of relying on the information presented.