Most of the reason why it is important for entrepreneurs to track all of the money that they have not only taken out of their business for personal use, but put back in says Edmonton bookkeeping, is because they have to end up paying personal taxes on all of the surplus that they have taken out of their business. By cheek keeping extremely good track of all of the money that they have taken out of their business as well as put into their business, entrepreneurs can avoid paying additional personal taxes on amounts that are not necessarily shareholders loans.

Shareholders’ loan account says Edmonton bookkeeping is the account that is set up on the balance sheet in the liability section that helps an entrepreneur and their accountant keep track of all personal transactions both in and out of their business. All personal transactions must be kept track of here including if an entrepreneur uses the business bank card to take cash out of the bank machine in order to use the money personally, using the business credit card to pay for personal meals or groceries, as well as an entrepreneur using their personal credit card to pay an invoice of the business, or using their own RRSPs in order to make payroll. Edmonton bookkeeping says that all of these things contribute to the shareholders’ loan account.

At the end of their fiscal year, when the accountant of the business is calculating their financial statements, they will calculate how much money they have taken out of their business, and how much money they put into the business. If they have put more money into their business then taken out, they get to take that money back out of their business whenever they can afford it, tax-free. However, if they have taken more money out of their business then put in, that is money that they either go back to the corporation, or money that they have to pay personal taxes on.

Many entrepreneurs wonder if it is possible to leave that money in their shareholders’ loan account for the next year. They either think that it is a strategy that can keep them from paying taxes on that amount, or they simply cannot afford the taxes. Edmonton bookkeeping says that entrepreneurs might also believe that they are going to put more money into the business in the future, and therefore they can avoid paying taxes on the amount. While this is possible, it is very ill-advised. The longer an amount sits in the shareholder’s loan account as owing the corporation, the longer it is considered a long-term liability of the business, and CRA may see this and question why an entrepreneur has taken a loan from their business and is not paying interest. The reason for this is because the entrepreneur at their business are considered separate legal entities for tax purposes. This means, an entrepreneur technically owes their business the interest on that loan. However, if they just claim it as income they bring their shareholder’s loan balance back to zero.

Edmonton Bookkeeping | Why Tracking Shareholders Amounts Is Important

Every time an entrepreneur makes a transaction in or out of their business for personal purposes, it ends up counting towards their shareholder’s loan amounts says Edmonton bookkeeping. At the end of the fiscal year, the amount that they have taken out of their corporation needs to be claimed on their personal taxes as income. There are several ways that this can be done, through mix of salary, dividends or both. An entrepreneur needs to sit down with their accountant every fiscal year-end, in order to discuss the best way to do this to give the entrepreneur the best tax advantage.

In order for an accountant to figure out the best strategy says Edmonton bookkeeping, they need to take into consideration the business situation as well as the situation of the business. Since this can vary from year to year, this is why it is important for an entrepreneur to sit down with their accountant every year. They need to discuss factors like is the entrepreneur the sole owner of the corporation, if not how many partners did they have and what percentage of shares to their own? Is the entrepreneur planning on selling the business in the next five years, is this their only source of income, or they have other sources themselves or from a spouse? Are they depending on this money to pay their household expenses? Once an accountant has figured out all of these various factors, they can strategize the best way to claim the money they have taken out of their business.

Dividends are the prophets of the business, and an entrepreneur can disburse them as they see fit. However, if an entrepreneur is going to claim the money that they have taken out of their business as a dividend, the first of all have to pay personal taxes on it, which can be up to a maximum of 48%. Edmonton bookkeeping says that in order to do this, an entrepreneur must make a profit larger than the amount that they have taken out of their business.

Salary, on the other hand, is an expense of the business, so it decreases the profit of the business. If an entrepreneur is thinking of selling their business, they may want to avoid taking salary, so it will look as profitable as possible to potential investors. Edmonton bookkeeping says that while salary is the most common way for an entrepreneur to disburse the money in their shareholder loan account, also is treated as typical salary for staff. Which means all the regular source deductions must be applied. An entrepreneur if they have taken money out of their business in the previous year and are claiming get a salary, they need to ensure they have enough money in their business to pay for all of the source deductions including income tax, the employer and employee portion of CPP as well is EI on the total amount that they are claiming.