March 20, 2023

What is a Shareholder Loan?

You might hear your bookkeeper or accountant use the term “shareholder loan” and wonder what it means.

A shareholder loan is an account where any money or assets put into OR taken out of the company by you (the owner/shareholder), is recorded. If you put money or assets into the company it is recorded as a positive number, and if you take money or assets out of the company it is recorded as a negative number, meaning that you owe the company money.

At the end of the year, if your balance in the account is negative, then your accountant will clear out the account by “paying” you dividends. The negative balance is the amount of dividends that is needed to record on your personal taxes. You get taxed personally on this amount. DON’T WORRY! Your accountant will calculate, prepare and file that dividend (T5) tax slip for you.

Alternatively, if you put money or assets into the company and you have a positive balance, you can pull this amount of cash out TAX FREE. Essentially, the company owes you money so you will not get taxed on it. It’s a repayment of the “loan” you advanced to your company.

You can always check your accounting software or ask your bookkeeper to see where your shareholder loan is at. Just keep in mind that the balance will only be accurate if your books are up to date.  Note that your shareholder loan account can fluctuate at any point depending on your transactions in the business.

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