Free consult & free copy of book

E-Myth – “Why most small businesses don’t work & what to do about it”

Contact Us


Most 5 star CPA Google reviews in Canada

Read Reviews

Chartered Professional Accountants E Myth

1 Fixed Monthly Fee - Planning | Accounting | Taxes | Consulting

Helping Canadian businesses beat the odds!

Edmonton Bookkeeper | Taking Dividends In A Corporation

When business owners are unaware of how their shareholder loan account works, the may not be taking money out of their business properly, which could result in CRA assessing them with significant tax payments says Edmonton bookkeeper. As Jim Collins, the author of six books was quoted as saying a culture of discipline is not a principle of business, it is a principle of greatness. Business owners need to learn how to be disciplined in taking money out of their corporation properly here are some easy steps to follow that will help them do just that.

Many business owners don’t know what a shareholder loan is this is Edmonton bookkeeper. Plainly, it prefer to whenever a business owner takes many out of their business, it’s called a shareholder loan. This is a running balance of all of the money that a business owner has ever removed from their business. They also have a balance running of all of the money that they have ever put into the business. These two amounts can cancel each other and equalize. For example says Edmonton bookkeeper, if the business owner takes a salary of $2000 a month, but also pays $3000 in a corporate bill, the business will owe them thousand dollars.

It’s extremely important that business owners take money out of their business using this shareholder loan, instead of just giving themselves a paycheck. The reason for that is so that they can keep track of how much money they’ve taken out in order to pay taxes on that. A business owner is not allowed to owe their corporation money for longer than two consecutive years. That means, that a business owner must clear that balance before the end of the second year. What clearing the balance means, is that a business owner must declare how much money they have taken out of their corporation on their personal taxes. Everyone, including business owners must pay personal tax on their salary or dividends that is taken out of their business.

For these reasons, business owners need to keep very good records of all of the money that they take the business as well as put into the business, so they know at the end of the year how much they need to claim for taxes. A great way to achieve this says Edmonton bookkeeper, is to create a business account sole purpose is to hold the money that the business owner is going to draw their salary or personal dividends from. By limiting the amount of transactions that enter or exit that counts, business owners as well as accountants and bookkeepers can easily see how much money is being drawn out of the business and shareholder loans, and also be able to tell if there are any errors that have come out because there’s only a few transactions to sift through. Ideally, a business owner should only have one or two draws per month, one being their personal dividends and the other being personal tax.

Many business owners want to become entrepreneurs in order to increase their wealth says Edmonton bookkeeper. They created business, and use their unlimited potential to increase their wealth in order to increase the profits in their business and pay themselves the salary that they would like to get however, if business owners don’t know how to pay themselves in dividends using shareholder loans, they could end up paying more in taxes than they could save.

Business owners need to understand what a shareholders loan is, Edmonton bookkeeper says that it is referring to the running tally of all of the money that they have ever taken out of their business. Every dollar they take out, that a business owner goes back to their corporation. However, business owners generally have no intention of paying that back, because this is the money to live off of. So they need to keep track of how much money they have taken out of their business, and declare that salary on their personal taxes. Declaring that salary on their personal taxes is called clearing the shareholders loan. Once they claim that money, their shareholder loan amount can start accumulating again. A business owner cannot owe their corporation money for longer than two years in a row, therefore Edmonton bookkeeper says they need to be acutely aware of how much money they have taken at the business each year, so that they can claim their salary on their personal taxes.

A great way to keep track of all of these amounts, is creating a business account and the only thing that should be coming out of that business account is the business owners salary or personal dividends. Edmonton bookkeeper says this allows very easy tracking of all of the money that a business owner takes out of their business, they can help their accountant or bookkeeper easily see how much money business owner takes.

If business owners fail to clear their shareholders loan within two years, and the risk CRA assessing them later on without warning and at any time. This may not happen at the end of year two, and it may take several more years, business owners who failed to claim how much they’ve made from their corporation, owe that tax to the Canada revenue agency whether they pay it up front, or CRA finds out and they have to pay it all back years later. This is a huge risk that it’s not worth taking says Edmonton bookkeeper, because be processed years now of paying all of the income tax that they should have paid already can financially ruin a person in their business.

By understanding these shareholder loans, and how they must take their salary or personal dividends and pay taxes on them, allow a business owner to effectively tax plants is Edmonton bookkeeper. By working with their accountant and planning the year ahead spreading the money that they’re going to take in order to avoid paying more taxes can be extremely beneficial for to help a business owner accumulate the wealth in their business.