# yet another question about shareholder loans from an incorporated small business



## fogster79 (Jan 15, 2013)

Hello everyone,

I'm a new small business owner and my year end is coming up on June 30th.

I'm learning so much and doing so much reading but I am still very new to this so I would appreciate your help in understanding if I understand correctly.

First of all, my new small business, which is an online business whose sole source of income is online advertising, was incorporated back in July 2012. When asked which calendar year I wanted to use I said we can make it end on June 30th (not sure if this was a wise decision, not even sure what this means exactly). I am the sole owner/manager and have no employees.

It started earning income in October 2012 and now June is coming up and I've made about 20k of profits. Expenses are about 5k but none of my time or labor has been remunerated.

First question. I need to file a report / pay back provincial/federal sales taxes coming up in June right?

What time period is that supposed to cover? Will I include profits/expenses/taxes from up to June 2013? That doesn't seem to make sense because I won't even have most of those numbers at that point. So what then? Up to December 2012? Do I need to generate a report at all this year?

Second question. I want to take some of that money out to reimburse personal debt (credit card mostly). Currently I am employed full-time and make a good salary but I plan to quit my job in the coming months. Paying myself a salary seems like the worse idea. I understand that making myself a shareholder loan which I would be able of paying back within 1 year following this calendar year (so I'd have until June 30 2014 if I understand correctly) seems like my best choice. Can someone confirm that this thinking is sound?

My plan would be to make myself a big S/H loan, and next year when I no longer have a personal income, I could take a big dividend and repay the loan with that. I guess next year I can start taking a salary since it'll make sense then.

Now in order to repay all my personal debts I wouldn't need to take out all of that 20k of profit but almost. Do you see any reason why I shouldn't take it all as a loan? In the future I sure intend on growing profits and leaving them inside the company but right now I could really use that money in order to relieve the stress from the debts and also restore my credit rating to its former glory.

One last thing, my accountant, which isn't officially my accountant yet, isn't a certified CPA. She's been doing people's taxes for years and she says she's done small business taxes and other services before. Does it matter that she's not certified? She seems really nice and her rates are what I would consider to be very low (30$/hour) but at the same time she doesn't seem super knowledgeable which might be ok because I like to gather a lot of information on my own.

What do you guys/gals think about all this?

Thanks.. much appreciated!


----------



## MoneyGal (Apr 24, 2009)

I think you might be further ahead to engage with a CA for this first year of taxes and use your bookkeeper to prepare your books and records for the CA to review and file. Then in future years, you might consider doing your taxes yourself. The compensation strategy for an incorporated professional is complex. I'd go with an experienced professional at least at the outset.


----------



## fogster79 (Jan 15, 2013)

MoneyGal said:


> I think you might be further ahead to engage with a CA for this first year of taxes and use your bookkeeper to prepare your books and records for the CA to review and file. Then in future years, you might consider doing your taxes yourself. The compensation strategy for an incorporated professional is complex. I'd go with an experienced professional at least at the outset.


That seems like a very sound plan and I am probably going to do that. I think the RBC has also told me that they offer many tax services. Maybe dealing with someone there will prove to be both affordable and reliable.

I would very much appreciate if you or anyone else could pitch in about the rest of my message. I feel like I don't have anyone where I can ask these basic (and not so basic) questions. I have to say I am a bit put off by the idea of paying 150-300 / hour to ask these to a CPA.


----------



## atrp2biz (Sep 22, 2010)

Income taxes are due three months after fiscal year end. The T2 return is due six months after FYE. For future years, you will have to pay taxes in installments. 

A FYE of July 31 will maximize tax deferral if you plan on taking a salary. This is because you can expense a management bonus at the end of the FY but defer payout for 179 days which allows you to defer the salary payment into the next calendar for year. If you haven't filed your first T2 for the company, you can still change your FYE as long as the first return does not have a FY greater than 53 weeks.

A shareholder loan is a taxable benefit. Prescribed rates are low, but something to look into.

Decision of salary vs dividend is very situation specific. I am salaried and my wife has a corporation. We have two kids and a nanny which means a $14k deduction. We've also deferred RRSP deductions the past which also plays into the equation. Many other factors. I'm trying to work on a spreadsheet that will find the optimal salary/dividend ratio using the solver function. It's getting pretty complicated. 

Agree 100% with MG above.


----------



## Greenback (Mar 16, 2013)

Dividend vs. Salary - Salaries requires monthly bookkeeping maintenance.
Dividends can be taken "as required".


----------



## fogster79 (Jan 15, 2013)

Shareholder loans are only taxable if you don't fall under one of the many exception cases from what I've read. For example, if I were to pay it back before the end of the following fiscal year then I wouldn't have to declare the loan as personal income. Taxes would still have to be paid on the interest but I believe the prescribed rate is of only 1% right now so that's peanuts.

Regarding changing my FYE to July 31st. Currently my FYE is June 30th and my incorporation took place on July 16th 2012. Does that mean then that if I change it to July 31st 2013 that it will be just a bit over the 53 weeks? IE July 16th 2012 to July 31st 2013? And so I won't be able to change it?


----------

