Shareholder loans are an essential aspect of any corporation that allows the shareholder to withdraw funds for personal use. Shareholders can make use of these loans at any time, but they have to pay them back. On the other hand, if a shareholder makes a contribution to the corporation, then the company also has to pay them back.
Such an amount is known as due to shareholder, and here is everything you need to know about it.
Due To Shareholder Explained
When you loan money to the corporation or pay for the company’s expenses using your personal funds, this is known as an owner’s contribution. Keep in mind that this amount will be shown as a debt on the balance sheet. Of course, this means that it is a liability owed by the company to you.
The corporation will have to pay back the money to you if they want to get rid of this liability at one point. If your business is in its early stages, then it is a common practice for shareholders to make owner’s contributions. You can help the company until it is liquid enough to cover its expenses.
Due From Shareholder Explained
Another term you will commonly see is due from shareholder. This is when you withdraw money from the corporation for personal use, which is why it is considered a loan. Personal tax does not have to be paid on this amount as long as you pay back the loan within the time frame of a year.
Due from shareholder amounts is applicable when you want to purchase a motor vehicle, house, cottage, condo, or mobile home. So, be sure to understand all the rules before you decide to opt for this type of loan.
What You Must Know Before Opting For Due To Shareholder Or Due From Shareholder Loans
It is crucial to have the proper knowledge before you make a contribution to the corporation or take out a loan for personal use. The key is to keep adequate paperwork and structure the loan in the right way. If you don’t take these steps, you will run into problems with the CRA that will cause you a loss of finances, time, and resources.
We recommend that you consult a tax specialist before you make a decision to take any such steps. A tax specialist will ensure that your paperwork is up to date and that the tracking of each business-related transaction is as clear as possible. Doing this will ensure that the CRA knows you will repay the shareholder loan on time to mitigate potential adverse tax consequences.
Final Thoughts
The above discussion is generally everything you needed to know about what is due to shareholders in Canada. It represents the amount that the company owes you after you have made an owner’s contribution. Before you take any such step, please feel free to get in touch with us and consult with our accounting specialists to make an informed decision and take the right steps.
