Good morning and welcome to another episode of always up to date. I’m Denise and this is yai and we are co owners of always bookkeeping today where you’re going to talk on our video about how to manage your shareholder loan account. Um, and so our coach for today is from Zig Ziglar. And the quotes that he has is money isn’t the most important thing in life, but it’s reasonably close to oxygen on the God I have that scale. And the statistic that we have for you today is from industry Canada. Uh, 80% of businesses used personal financing to find out their new business. Um, so we have here, uh, we’re gonna kinda discuss this shareholder loan account. Um, and so we look at business owners who take money from, uh, their business to support their household expenses. Uh, so this business owner ends up paying more tax from taking out, uh, taking money out of the business and the business is growing and profitable with Edmonton Bookkeeping.
However, there’s not enough cash in the business support to support operations. Um, so y’all, wait, can you tell us what a shareholder, accountants, so a shareholder loan account is something that you set up in your liability, a section of your balance sheet to be able to keep track of anything that you take, auto contribute to the corporation. Um, most co or some companies usually use their own equity accounts to do, um, their these transactions. But, um, the, the thing with that is that it, since it’s a share that your value of your shares comes, uh, fluctuates depending on the value of your business. So most accountants would use a shareholder loan account to be able to track the daily transactions or, um, periodic transactions that happens between the shareholder and, um, and their own corporation. So that’s what a shareholder loan account is for Edmonton Bookkeeping. No.
And so what kind of transactions should be considered as shareholder transactions? So I, shareholder transaction would be, again, this is like your contribution or your withdrawal from a, you’re a corporation, you would only have a shareholder loan account if you’re a core are if you are incorporated. So, um, technically your, um, corporation is a separate entity from you. So anything that you take out, whether it’s withdrawal, uh, of cash or even using corporate, um, assets or corporate, um, funds for your personal, um, purposes that is considered a con or sorry, uh, withdrawal from your corporation, which is a shareholder loan transaction. Another one is when you contribute money into the company. Uh, this could be a pre purchase of shares. It’s a little different because that directs directly to your equity. But let’s say if you’re lending your corporation a little bit of cash for operation, that would be a shareholder owned transaction with Edmonton Bookkeeping.
Yeah. Great. Um, so you only can, I owe money from, uh, to my company. You can, um, you can, it is not advisable because once you take out the money, it becomes personally taxable to you. So, uh, normally, uh, bookkeepers and accountants try to advice their clients not to have an overdrawn, um, shareholder loan account, which is you’re taking more than what you have contributed to your corporation. Um, however, for series purposes, you can have one year of, uh, an overdrawn Cheryl Holder won’t account, um, is more common than they think. But again, this is not advisable. Right? Um, the reason for that is because CRA would have the argument where if you owe your money from Oregon a year, then it becomes a longterm liability. In that case, why is a company not charging you interest for it? Again, it comes to, um, it comes to the, uh, the question are assorting the principal that you are separate from your own entity that uses Edmonton Bookkeeping.
So the corporation, the person are always have per people. So, um, that’s why you can, uh, you can own when you for a short amount of time, but try not to, otherwise you’ll be charged interest. Right. Um, so what happens if I withdrew more money than I contributed to my corporation? Um, that I think I touched on it a little bit. Um, if you withdrew more than your shareholder loans become, um, overdrawn. So that means your, you have the negative shareholder loan account. In most accountants or most bookkeepers, they would have declared enough salary or dividends to offset that. Um, we drew a wall cause technically this is you taking up money either or on, um, on a salary or as a salary for paying yourself or dividends for taking out the earnings that you’ve earned from the corporation or even just, um, the company loaning you money with Edmonton Bookkeeping.
So that’s, uh, that’s what happens. Um, and that that’s what leads to a negative, um, shareholder loan account. So what are the tax implications of my shareholder loan is over John. Okay. Um, I think I touched on it a little bit on the Cru basis. Again, if you have more than two consecutive that your shareholder lawn, uh, shareholder shareholder loan is overdrawn, then the CRA, my, um, this might trigger to CRD to look for dirt into your account and they may look, uh, and say again, claw back all the interest. That should have been a charge, um, to you from the corporation, from you OEM corporation money and um, that could meet a lot of, um, penalties to the CRA and, um, a lot of interest payments that you have to, um, do show in your accounts with Edmonton Bookkeeping. Yeah.
Um, so should I make, um, personal transactions in my corporate account? Um, I S for some people it might not be, um, an avoidable or it might be unavoidable, but I try and make those two separate. Again, it goes back to every time you take out money from your corporation, it is a withdrawal and you will be taxed personally for and once they declared that salary or dividend.