If the loan was related to normal business activity, it is not considered a shareholder loan provided there is in place actual repayment terms where interest is charged at standard rates. No taxable benefit will occur if you repay the loan by December 31, 2022. The Tax Guy refers to this as the one year rule.įor example, let's say your corporation has a December 31 year-end, and you as a shareholder borrowed $15,000 in 2021 from the corporation.
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The loan cannot be a series of small borrowings and repayments for this rule to apply. If the loan is repaid within the year following the corporation's year end, then the loan does not have to be included in income. However, there are exceptions to this rule. When the loan is repaid, it can be deducted from income in the year of payment. The amount received must be included in the recipient's income in the year the money was received. Generally, when a loan is made by the corporation to a shareholder, a taxable benefit arises for the shareholder. The article titled " Shareholder Loans and Your Private Corporation" has now been republished on The Tax Guy's new website -Dean Paley.) I've recapped the original 2008 article here. It seems to have been replaced with a similar blog dated Februtitled "How Shareholder Loans Affect Your Income Tax". (This article is no longer available on his blog. The Tax Guy from the Canadian Tax Resource website explains loans to shareholder in his Augblog. If you and other family members own less than 10% of the corporation, your transactions are treated the same as if you were an employee.
YOU need to be careful that money you remove from the company is not at risk to be taxable. There are very specific rules when a corporation loans money to its shareholders who own more than 10% of the shares and their family members. before you write yourself that cheque or take that cash. If an asset is registered in the owner's name, it is a personal asset regardless if the funds to purchase were removed from the corporation. What does this mean to YOU? All titles to assets MUST be held in the corporation's name, not the owner / manager's name. Why? The corporation has its own legal identity that is separate from the owner / manager's identity.
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Unlike a sole proprietor, an owner / manager does NOT have free access to the company's funds and/or assets. to ensure there are no negative tax consequences. You may also want to m ake sure you meet CRA criteria BEFORE you take any management fees or bonuses. If you have a negative shareholder loan balance (it is in a debit balance), these rules now apply to you. If your company is a Canadian Controlled Private Corporation (CCPC) and has loans to shareholders, be aware of the very specific rules that apply when a corporation loans money to its shareholders who own more than 10% of the shares and their family members.
The Employee Payroll Rates - US and Canada.The Self Employed Rates - US and Canada.The Travel/Auto Rates Options - US and Canada.
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