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Shareholder Loan Explained - Understand it and Avoid Trouble with the CRA🍁
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- čas přidán 2. 08. 2024
- In this video, Joe explains what a shareholder loan is and how to use it. He also discusses potential tax issues that can arise with CRA and how to avoid them.
This video answers these questions:
► What is a Shareholder Loan?
► How is a Shareholder Loan Used?
► What Does Your Shareholder Loan Balance Mean?
► What Does Your Shareholder Loan on a Balance Sheet Look Like?
► Shareholder Loan Problems with CRA
► How to Avoid Shareholder Loan Tax Problems
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🎥 CONTENTS OF THIS VIDEO
00:00 - Intro
00:36 - What Is a Shareholder Loan?
01:36 - How a Shareholder Loan Is Used
01:42 - Owner Cash Withdrawal
02:03 - Purchase of a Personal Item with Company Funds
03:11 - Owner Cash Contribution
04:22 - Paying a Business Expense with Personal Funds
05:19 - What Your Shareholder Loan Balance Means
06:37 - Bookkeeping Courses
06:56 - Shareholder Loan on a Balance Sheet
08:44 - Shareholder Loan Problems with the CRA
09:21 - How to Avoid Shareholder Loan Tax Problems
09:52 - Repaying the Loan
10:36 - Taking the Funds as a Salary
11:14 - Taking the Funds as a Dividend
11:50 - Final Thoughts
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🔗 MENTIONED IN THIS VIDEO
► Shareholder Loan Blog Post
www.avalonaccounting.ca/blog/...
► Small Business Bookkeeping with Xero and Dext
www.avalonaccounting.ca/cours...
► Financial Foundations Guide
joecollins.typeform.com/to/jF...
► Salary vs. Dividends - How to Pay Yourself from Your Corporation
• Salary vs Dividends - ...
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❓ FAQs
► What Can I Write-off? bit.ly/EXPENSESCAN
► Should I incorporate my business in Canada? bit.ly/INCORPCAN
► What is a shareholder loan? bit.ly/SHLOANCAN
► When and How Should I Hire an Employee? bit.ly/hirelikeapro
► Should I offer profit sharing? bit.ly/PROFITSHARECAN
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Here's something you clarified for me:
The fact that the loan owed to the shareholder has no term of repayment, i.e. company can owe shareholder indefinitely.
Most material online focused on the scenario where the shareholder owes the company and the intricacies of repayment and not the reverse scenario.
Great video as always, the due to shareholder is something that not many other videos have covered. I’ve used a due to shareholder when I incorporated my business, giving my sole prop inventory to the new corporation as a loan
I am looking at going corporate and this is one thing that is deciding whether or not to incorporate. I get the short term loan and having to repay it back within a year to stay within good withstanding. But I was also told that there was a long term option. As long as the personal makes a agreement with the corporation with amount and terms and then plus interest of minimum of what the rate of bank of canada is then one can take assets out of the corporate for many years. This is most interesting for me as say there is real estate (land) in the corporation and one would want to transfer that to the personal name, one can do so on a shareholder loan with interest. This is not directly but can give yourself more dividends to cover the payments. Yes I know that there will be interest from the personal but if the personal has a business along side the corporate then can also write off the interest from this loan agreement. Just want to know your take on this. Also I really enjoyed the wealth of knowledge that you put out on corporate planning and all there is to know with it. Thanks
Thanks for the video. There was one part where you were saying the shareholder put 10,000 into business and then withdrew in a few days. Wouldn’t that 10,000 be considered income then?
Great review. Good to have a working understanding of this.
Your account has been a godsend for me, navigating the murky waters as a small business owner. Thank you so much!
So glad to hear it! Thanks Haiba :)
Your videos are top notch! Thank you for this
Thank you so much! Really appreciate the feedback :)
Great Video. You should do a video for Taxes for Day Traders. Very few videos are there on CZcams for Canadians.
Well done. I loved the video clips you added in :D
Yesss, glad you enjoyed it, Dan! Adding a bit of goofiness keeps it fun for us too :)
Paul
Great video! Definitely invaluable. Can you explain the methods behind loaning funds to the corporation ( CREDIT BALANCE ) and stipulating the terms of the loan ; such as interest rate, method of interest calculation ( simple or compound ) and period of repayment.
Will the interest on the loan be considered personal income in such a scenario when you were repaid by the company and also a deductible to the company ?
Thanks in advance for your response.
I’m from Winnipeg, and I just subscribed….😂
thank you for this video!
"Paul could also leave the shareholder loan credit balance in place for as long as he likes." Can you leave the shareholder loan credit balance, interest free? Can this apply for other loans to the corp, for example a loan from family?
Can you please cover “loan to director” and “employee home purchase loan” thank you
Wonderful explanation!
What if I loan the Corporation a significant amount of money (say in the order of tens of thousands), do I need to sign a shareholder loan agreement or can it only be recorded in the books?
In either case, could I "write-off" the loan to the corporation from my personal income tax for the year I commit the loan (given it is not paid yet)? Thanks a ton!
Note: this loan constitutes purchasing 100% of the business and start it from the ground (buying equipment etc.). The business made zero revenue so far as no sales were made yet.
Sir would you talk please whether it’s best to record start up money invested by shareholder as equity or shareholder loan?
Does taking a shareholder loan out of the company affect corporate taxes specifically when corporate year end and Personal tax year end are different times
Will banks give low interests cash loans with company shares collateral value?
Wow... I thought loan to shareholder meant a loan was given to the shareholder and the shareholder needs to pay it back
Great series of videos - very helpful!! I am reading on the CRA website that "salaries or drawings of the owners of the business...paid or payable to you or your partners are not deductible" so I am confused when your video mentions that a shareholder salary can be claimed as a deductible expense. Can you please clarify?
You might be looking at sole proprietorships. Corporations can pay owners via salaries and deduct the cost as an expense.
If the Shareholder Loan account has a credit balance, if the business owner doesn't want to affect the company's available cashflow, instead of taking the money out they can reduce the business' liability by paying a dividend, correct? So on paper they are offsetting the company's liability by the amount of the dividend, while leaving its cashflow intact. The business gets no tax credits and the shareholder declares this dividend payment as personal income, but they benefit from the lower tax rates/ small business dividend tax credits. Is this correct?
I have startup expenses that I made prior to launching my llc on January 1st (couldn’t get a business account until after that point) using a personal account. I need to reimburse my personal account through my business account. How would I do this in quickbooks or similar software? Thank you
If you have all receipts you can create a journal entry - Dr. Expense accounts, Cr. Due to shareholder (liability account).
Later whenever you want you can pay what company owes you - Dr. Due to shareholder, Cr. Cash.
Hello, I have seen some of your videos and like them. I have 2 corporations which one of them is not very active but other one is active and I am looking for an experience tax planner to help me save on tax and show me right strategy, so I am wondering if you can do it for me and please let me know if we can video call and explain pls. Thanks
Hey Mehdi - the best way to get in touch would be to reach out through our website: www.avalonaccounting.ca
Thanks!
Is the Shareholder Loan account the same as the Owner’s Equity account? I’m so confused with the two. When I started my corporation, I put money and computer equipment and office furniture into the company that I paid with personal funds. I was told that is a Shareholder Loan. But others say it is Owner’s Equity. Which one is it? How would I record those initial transactions? Some say do not include the GST. Can you clarify?
Great question! Owner's equity and shareholder loan are indeed different. Owner's equity is most likely referring to share value in this context, which is essentially what you contributed to the company in exchange for your shares in the corporation (this could be cash or other assets as you mentioned). Generally speaking, people contribute something nominal (like $10 or $100) for their shares if they are 100% owners (can be a little more complex with business partners). The remaining contributions of cash, computer, and furniture could be considered to be a shareholder loan as you paid for those items personally and need to be reimbursed by the company.
For contributions of your own personal equipment, you would not need to charge GST, however, if it was owned through your sole proprietorship, which was a GST registrant, you would need to charge and remit GST. You could fill out a GST44 form to exempt the transaction from GST in this case too if you wish.
Whoa! Deep breath - sorry to go down the rabbit hole. There are always a lot of "ifs" in these answers, so if you are unsure, please reach out to your accountant. We can be useful sometimes 😅