Edmonton bookkeeper | shareholder loan facts
The risks that business owners face if they don’t understand how to take money out of their shareholder loans, is either by paying significantly higher taxes, or even getting assessed by CRA having to pay additional taxes unexpectedly says Edmonton bookkeeper. One of the most important things for business owner to understand when it comes to taking money out of their business, is how to do it in a way that does not put them at risk for paying higher taxes. While dividends can be complex, understanding some basics about shareholder loans can help business owners make great decisions and continue taking money out of their business in order to live.
For every dollar that a business owner takes out of their business, they need to understand that is money that they owe back to their corporation. This money that they owe their corporation is kept track of in a running total since the beginning of their business. It is extremely important that a business owner keeps very good record and good track of all of the money that they have ever taken out of their bank accounts. 1 Easy Way to do this is Edmonton bookkeeper is to have a separate bank account that the only money that comes of that account is the business owners personal dividends or salary. This allows the business owner to easily see how much money is coming out of the business. This also will make it very easy for their accountant to be able to see all the money that’s coming out. If for any reason, a business owner takes money out of their business that is not personal, they need to be able to justify that to the CRA and prove to them that it wasn’t taken out for personal use. The reason why this is extremely important says Edmonton bookkeeper, is because business owners have to pay personal taxes on everything that they have personally taken out of their business. If they took something out and it wasn’t for personal use, they need to be able to prove that to the government in order to avoid paying taxes on that. If business owners don’t understand that, they may take money out of their corporation for non-personal reasons, and still have to pay the taxes on that.
It’s also very important that a business owner knows that for every dollar that they owe back to their corporation, they need to pay it back within a two-year period or else they must clear that balance. Edmonton bookkeeper says business owners can clear that balance by simply declaring to the government how much money they took out of their business in order to pay taxes on it. Many business owners don’t understand that they have to pay back the money that they or their corporation within that two-year timeframe. If they don’t clear the balance, CRA can hit those business owners with a tax assessment on all the money that they have taken out of the corporation.
Business owners may believe that they can take out any money they want out of the corporation at any given time says Edmonton bookkeeper but this is actually not true. Business owners actually need to keep very good track of not only all of the money that they have taken out of their business, but all of the money that they have put into their business. Both of these amounts are kept is a running total that dates back to the very start date of the corporation. By understanding how shareholders loans works, business owners can avoid paying additional taxes and can help them effectively tax plan in their business and take money out of their business smartly.
Business owners should understand that all the money that they take out of there business is money that they owe taxes on. Edmonton bookkeeper says every dollar that a business owner takes out of their account, either needs to be paid back to the corporation, or needs to be paid taxes on before the end of the second year. Business owners cannot owe their company for more than two consecutive years without paying taxes on all the money that they have taken out of the business. If they do not clear their balance, CRA will be able to hit business owners with the assessment and any time without warning. Often times, business owners don’t understand that I have to clear that balance and declare to CRA how much they’ve taken out of their business says Edmonton bookkeeper, and go several years without declaring that, and get hit many years later with that huge tax bill. It can be devastating to business to have to pay back that tax immediately, so business owners who understand that they need to clear their balance CRA within two years, can avoid significant tax bills.
One of the ways that business owners can keep track of all of the money that they have taken out of their account, is to create a shareholders loan account. This can help not only monitor the accounts both on the business owner and the accountant’s side says Edmonton bookkeeper, they can also help avoid errors, and to become easier monitor. it’s extremely important that business owners are able to monitor this, Since a shareholders loan dates back to the start date of the corporation, the business owner or their accountant they need to at certain times look back historically to see what shareholder loans were taken out several years ago. Having a separate account, this can help business owners keep that monitoring simple and easy.
It’s extremely important for business owners to understand how shareholders loans works, and that they can take out salary or personal dividends from their account, as long as they account for it, and clear it by knowing this, business owners can plan how to take money out of their account in a way that will maximize their benefits while minimizing taxes that they have to pay.