Taking Money from your Corporation Part 1

If you own a corporation (or if you are a shareholder), you must know all the ways to take money from the corporation.  Maybe you work for this corporation full time or part time, or maybe you don’t.  Many people from CRA try to convince you to set up a payroll account and make monthly remittances.  This is definitely not the most efficient way to get money from your corporation.  In fact, it’s one of the least.  What if the corporation owes you money for money you loaned it or for an asset you sold to the corporation?  This is called a shareholder loan.  Shareholder loans must always be considered when taking money from your corporation.  In this blog series, we will understand the basics in 3 categories of taking money from your corporation:

1. Shareholder Loans: Loans to and from your corporation
2. Dividends: Payment of profits of the corporation to the shareholders
3. Payroll: Direct Remuneration for work/services rendered

A Shareholder Loan is a loan that can be both from the shareholder to the corporation and from the corporation to the shareholder. Let’s start by looking at a loan from the shareholder to the corporation to get the basic idea.  If you put start up capital into your corporation, pay for expenses on behalf of the corporation or loan the corporation money the corporation now owes you, the shareholder, the money.  You typically won’t collect interest, but you may want to in specific circumstances. 

Another way that you may have a shareholder loan owing to you from your corporation is if your corporation was in need of certain assets that you own personally, such as a car or computer, and you sold the assets to the corporation.  For any asset that the corporation purchases from you it must purchase the asset at Fair Market Value.  Keep in mind that if you are selling an asset that appreciates (not depreciates) than you may end up with a Capital Gain personally when you sell the asset to the corporation.  (This can also be deferred in certain instances)  When you sell the asset to the corporation, the corporation will either pay you right away for it, or pay you later.  If the corporation pays you later then you simply have a shareholder loan owing to you. 

There is another side to the shareholder loan that we will be discussing on the next blog. Please check back next week!