Shareholder Loan Agreement Cra
One of the things to consider in dividends is that the shareholder does not have to pay source deductions when taking the money. That sounds good, but it`s very likely that he will have to tax when filing his tax return. The right planning will help avoid a surprising tax bill in April. In Barbeau v The Queen, 2006 CER 126, the Financial Tribunal of Canada interpreted 15 (2.4) (f) to mean that at the time loans were made to the recipient`s shareholder, there was evidence to determine when the loan would be repaid, including the existence of specific repayment terms. Loans to employed shareholders are always scrutiny during a cra tax audit and our experienced Canadian tax firm can maximize your chances of resisting such a check with proper planning and documentation, and in particular a credit agreement. 7. If a borrower can prove that a loan is covered by any of subsections 15 (2.2) to 2.6), the loan is not included in the income referred to in subsection 15 (2). The provisions of paragraphs 15, paragraphs 2.3 to 2.5, provide for derogations from the inclusion of loans in income where the loan is granted for specific purposes, while subsections 15, paragraphs 2.2 and 2.6, provide only that paragraph 15, paragraph 2, does not apply to loans in special circumstances. Subsection 15 (2.2) is described in point 37 below, while subsections 15 (2.3) to (2.5) are discussed in §s 8 to 23 below and subsection 15 (2.6) in paragraphs 24 to 29 below.
A loan from a corporation to one of its shareholders or to a person or partnership that does not negotiate with the shareholder at another time may be considered a taxable benefit to the shareholder. An accountant or accountant might also call this “payable by the shareholder,” given that the loan amount is owed by the shareholder to the company. Another common version of a property contribution is when business fees are paid with the shareholder`s personal resources. You may also know it as “Due to Shareholder,” but the fundamental premise is the same. In general, your shareholder loan represents all the funds you have brought to the company. Or on the other hand, it represents all the funds you have withdrawn from the company. The permanent repayment of the loan before the end of the year will help avoid the tax problem. But it also means that the shareholder can`t use the money for a new TV and a trip to Hawaii. If you deposit more money than you borrow, the balance changes, so the company actually owes you money (also known as a shareholder). While there are countless opportunities for shareholders, particularly owner-managers, to withdraw remuneration from a company, it may be advantageous, in certain circumstances, to characterize a company`s shareholder draw as a shareholder loan.
The provisions of the Income Tax Act relating to shareholder loans can be very complex and, if shareholders are not prudent, they may be subject to an income inclusion for the total amount of the loan plus interest referred to in Article 15(2) of the Tax Law. To successfully navigate through paragraph 15(2) of income tax and its many exceptions, proper planning is essential. Our experienced tax lawyers in Toronto can properly document shareholder loans so that your business is prepared for a CRA tax audit. . . .