Francesca Giroux, CPA
For the Lakeside Leader
If you have a corporation, a shareholders loan is an accumulation of funds paid into and taken out of the corporation by the shareholders over the life of the corporation. For example, if a shareholder loans the company money it will increase this account, and if a shareholder makes a personal purchase (i.e. groceries, clothing) with the company’s money the amount will decrease this account.
It is important to review the balance in the shareholders loan account at each fiscal year end as the Canada Revenue Agency (CRA) states that when funds are advanced to a shareholder, the amount of the loan must be included in the income of the shareholder during the year that the funds were paid. There is an exception to the inclusion rule, where if the shareholder repays the loan within the year following the taxation year of the corporation the amount of the loan does not have to be included in the shareholders income for the year. In order for the exemption to apply, the repayment must not be part of a series of loans or repayments, where the shareholder takes out a loan, repays it and takes out another loan for a similar amount in the same taxation year. The balance of the shareholder loan account cannot be in a deficit position two years in a row, as this indicates that the shareholder has not repaid the loan, nor included the amount of the loan in their income.
Personal expenses paid by company funds are to be included as a reduction of your shareholders loan. If the shareholder loan transactions by the end of the fiscal year result in a negative amount, this amount will need to be included in the shareholders income for the year, provided they are not going to pay the funds back in the following year. A disadvantage to using your company accounts to make payments on personal items are that it increases the number of transactions to be recorded as all of the personal receipts must be entered along with the business expenses in your bookkeeping program. This takes additional time, which if you pay for a bookkeeper, will likely increase your bookkeeping fees.
Please e-mail your questions to firstname.lastname@example.org.
Information provided is of a general nature. As each individual or company’s situation is unique, you may wish to consult with your CGA for information specific to your own needs.