Utilizing Shareholder Loans

Shareholder Loans are a powerful tool when you have a private corporation. You may loan your Corporation excess funds that you have and receive it back at anytime tax free. You may also take short term loans out during a fiscal year as long as you pay it back within the year. Another way to use a shareholder loan is to put assets into your corporation. This works similar to selling an asset to the corporation. When an asset is sold to the Corporation, you do not have to take the money right away. In fact the Corporation may need the asset now, but not have the money to purchase it outright. You many sell the asset to the corporation without the corporation paying now, but instead owing you the money later down the road, when it has the money and/or when you need the money. Many people take Shareholder “Draws” out of their Corporation throughout the year and then at the end of the year determine if this shareholder draws are in fact dividends or wages.

Utilizing Dividends

If you were a shareholder of your private Corporation then you may be able to receive Dividends from your Corporation. Canadian Dividends are a very tax advantageous type of income due to the large Dividend Tax Credit that comes with them. The Corporation can only issue dividends in the amount of positive retained earnings. Retained Earnings is simply the sum of profits and losses, less dividends, throughout the life of the Corporation. Dividends are paid out after the Corporation pays its Corporate Tax, which is currently 14% for Private Corporations making under $500,000 active net income in Alberta. If Dividends are your only source of income you may be able to make up to $35,000 without paying any personal tax. If you have other tax credits and tax deductions, then this number continues to get larger, paying no personal tax. You also pay no CPP or EI on dividends. Dividends are issued to Shareholders 18 or older, and may be issued to Holding Companies tax free, and to Trusts that are Shareholders.