# Is it possible to take a shareholder loan from HoldCo for down payment



## VanRobby (Dec 7, 2018)

Hello, I am a small business owner. I own my operating company with a business partner. I also have a HoldCo which I transfer dividends from the Operating company to. As a result, I’ve accumulated quite a bit of money in the HoldCo. 

Now, I’d like to use the money for a down payment. If I take the money out normally, it’s subject to personal tax. 

Is there any way to get this money out without paying tax in order to use the money as a down payment? Is there a way I can take a personal loan from my HoldCo which I could payback over time? 

Let me know if you have any suggestions. 

Thank you.


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## Onagoth (May 12, 2017)

VanRobby said:


> Hello, I am a small business owner. I own my operating company with a business partner. I also have a HoldCo which I transfer dividends from the Operating company to. As a result, I’ve accumulated quite a bit of money in the HoldCo.
> 
> Now, I’d like to use the money for a down payment. If I take the money out normally, it’s subject to personal tax.
> 
> ...


The standard rule is that shareholder loans are included in income. This will not take place if the loan as been repaid within 1 year of the end of the taxation year that the loan happened....so you can get a loan for up to 23 months. The loan cannot be part of a series of loans and repayments for this saving provision to apply.

The loan will have to bear interest to avoid a deemed interest benefit. If you're acquiring property like a rental property, the interest you pay on the shareholder loan should be deductible, but not if the borrowings are to acquire a principle residence.

You can take the loan and have holdco declare dividends over the next 23 months to repay the loan, but those dividends will be included in income. 

There are very likely other ways to extract capital from your business without tax (eg, does holdco have any balances in their capital dividend account?)...Alternatively, you might be able to extract capital by using Opco as an intermediary....it's hard to say without knowing your full picture and its best to involve an accountant in the process. 

Also, if you're a first time home buyer, there is another way to go about this as well.

Whoever prepares the corporate tax returns for Opco and Holdco should be able to offer some insight.


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## VanRobby (Dec 7, 2018)

*First Time Home Buyer*

Also, if you're a first time home buyer, there is another way to go about this as well.

Thanks for your reply Onagoth. It’s helpful. Yes, I am a first time home buyer. In this case, what would be another way to go about this?

Let me know. Thanks again.


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## Onagoth (May 12, 2017)

VanRobby said:


> Also, if you're a first time home buyer, there is another way to go about this as well.
> 
> Thanks for your reply Onagoth. It’s helpful. Yes, I am a first time home buyer. In this case, what would be another way to go about this?
> 
> Let me know. Thanks again.


You could take dividends or salary from holdco and contribute amounts to your RRSP (assuming you have the room) to stay tax neutral from an individual perspective. You can then withdraw the amounts from the RRSP under the Home Buyers Plan. No withholding tax applies to HBP withdrawals and you have 15 years to repay the amounts, but the RRSP contributions do need to stay in the plan for 90 days first.

Just food for thought...the HBP may not be for you but it is one option. There is a cap on the HBP withdrawals though so it might be sub-optimal depending on how much you envision getting out of Holdco

More info on the Home Buyers Plan here

https://www.canada.ca/en/revenue-ag...rsps-related-plans/what-home-buyers-plan.html


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## VanRobby (Dec 7, 2018)

*Shareholder Loan*

Thanks, Onagoth. I’ll likely use the HBP but unfortunately it doesn’t get you that far here in Vancouver. 

For the shareholder loan, what’s the penalty if I fail to repay the full amount within the allowed time frame (1 year after fiscal year end)? Does the loan amount just get added to my personal income for the year?

If I were to pay back say 50% would I owe tax on the full amount. Or would the tax be offset by the amount that I was able to repay?

Let me know. 

Thank you for your insight. 

Mark


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