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Business owners should understand that a shareholder loan is all of the money that they have taken note of their business ever. Every time a business owner and takes money out of their business, they owe their corporation back that money. This amount of money is kept truck is a running total that dates back to the beginning of the corporation. Edmonton bookkeeper says that since business owners are not planning on paying that money back, because they’ve taken the money out as salary to live off of, so instead of paying that money back, they need to clear that amount. How they can clear that amount is by declaring their dividends or their salary that they have taken on their personal taxes. Once they declare the money that they’ve taken, that actually effectively clears the shareholders balance, and they can start accumulating money again.
Business owners need to be aware that there is a time limit on when they can declare this money on their personal taxes. They are not allowed to own their own company shareholders loans for longer than two consecutive years. If they do not declare to the government how much they are taking from their company within that timeframe, CRA can add that amount to their tax assessment and any time they choose, and without warning. Business owners who are not aware of this time limit, they believe they can keep going their company for several years, and CRA will hit them with a tax bill many years down the road. To avoid this, Edmonton bookkeeper recommends that there shareholders account on a regular basis.
It’s also important to note says Edmonton bookkeeper that every time a business owner pays something to the corporation, that money is taken off of what they owe their corporation. For example, if a business owner takes $2000 out of the corporation for salary, but then pays $3000 of corporate expenses, the corporation then owes them $1000. For these reasons, it’s extremely important that a business owner keeps track of all of the money that they have paid to the corporation, as well as all of the money that they have taken from the corporation.
Entrepreneurs can take money that they need to live out of their corporation as salary or personal dividends instead of the paychecks is Edmonton bookkeeper. But they must understand how to keep track of this money that they are taken out called a shareholder loan. They must keep track of this, in order to avoid running into problems with CRA and taxes.
The first and most important thing that business owners should be aware of when they are taking money out of their business, is that it is called a shareholders loan, and that every time they take money out, it’s actually money that they owe back to their corporations as Edmonton bookkeeper. The catch here is that since a business owner has taken the money out of their business in order to live off of it, they’re not actually planning on paying that amount back. So instead of owing their corporation, business owners need to clear that shareholders loan. In the way they do this is Edmonton bookkeeper is by declaring their dividends or their salary on their personal taxes. Everyone, including business owners pay personal taxes on their dividends and salary that they take from their business. Once they declare that amount, it clears the shareholders loan balance and they can continue their business and start accumulating more money.
It’s extremely important that a business owner is able to prove to the Canada Revenue Agency how much money they’ve taken from their business, in case CRA doesn’t believe how much money they have taken that amount as salary dividends. Edmonton bookkeeper says great way to keep track of their shareholders amount draws, is by creating a bank account whose only purpose is for the business owner to draw their dividends out of. By limiting the number of transactions that have been in this account says Edmonton bookkeeper, business owners can keep extremely clear track of how much money they are taking out of their business and when that money comes out. This way the business owner, as well as their accountant will be able to see very easily how much money is being taken out, as well as there is any errors. This will be extremely important if CRA has any questions. It’s also important, because it may be necessary from time to time for business owners or their accountants to review their historical shareholder loan balances. If business owners keep track of their shareholder draws in this manner, it will be very easy to review the historical data.
By understanding very clearly how shareholders loans works, business owners can plan their yearly payments around that, so that they can avoid taking too much money at any given time and being hit with a significant tax bill. This way, Edmonton bookkeeper says business owners can draw the salary they want from their business, and avoid paying significant taxes, or being assessed with having to pay back taxes. If you need to learn about shareholders, dividends, or anything else mentioned above. Be sure to call us at, 780-665-4949.
