If a corp directly paid for a shareholder’s personal expenses and there is a sufficient balance in the due to shareholder account, can we argue that those payments were repayments of the due to shareholder balance rather than 15(1) benefit in case of a CRA audit?
Were they charged to the shareholder’s loan account on payment, yes, in my practice.
The way I read your post, you know it’s not business expense, but your client record it as business expense, and you want to leave it as business expense because there is a due to shareholder balance. And you want to use that as reason to allow the personal expense when CRA questions it?
They were personal expenses, so they were not claimed as business expenses. I was wondering whether 15(1) automatically applies when a corporation pays for a shareholder’s personal expenses, regardless of the shareholder loan balance.
No – that would be illogical. Only when the s/l balance is a debit. And then, only if not repaid appropriately, with interest.
You don’t need to pay interest on shareholder debt. Just repay the principal it to avoid 15(1).
I think that Sec 80.4(2) says that is incorrect?
I am actually confused, if everything is recorded properly, like in the GL for shareholder loan, and you still end up with a balance owed to the shareholder, the company didn’t record any personal expenses, why are we concerning about he 15(1) benefit? It’s like the company is repaying the money to the shareholder, and the shareholder uses the repayment to buy something personally.
I think he was asking exactly that…if the s/l is credit then “whatever” is simply a repayment…if the balance becomes a debit, then S 15(1) can be triggered. My guess is that the OP thought that maybe S 15(1) could be triggered even if s/l were in a credit position, which I guess one could elect to do…but…why WOULD one do that?
Yeah, that’s why I initially though it was personal expense, recorded as business expense, that’s the only way it can happen. But based on “”“paid for a shareholder’s personal expenses and there is a sufficient balance in the due to shareholder account”“”, that indicates, after paying the personal expense, and assuming it’s recorded in the same GL, and still with a balance owing to the shareholder, we don’t even have to look at 15(1) benefit, unless, it’s not recorded in the shareholder loan GL
Kumar V. The King is a recent TCC case 2024 where an existing positive shareholder loan balance did not prevent a subsection 15(1) benefit from being assessed where the payments were not properly documented and reflected as loan repayments.
If personal expenses were paid by the corporation, were debited to the shareholder loan account, and the shareholder loan account remained in a credit balance, typically there is no 15(1) issue.
Good find! Missed that one somehow on the way by (I usually notice these in Tax Intepretations’ emails…).
I refuse to allow clients to gloss over payments made on their behalf personally by their corp and ALWAYS charge to S/L. That’s what sent Harold Ballard to jail decades ago.Also one of the reasons that I always peruse the GL if we didn’t do the bookkeeping…