A Shareholder of CCPC is using their cell phone and home internet for business purposes.
Can they have the corporation reimburse them for the portion related to business use?
e.g.
Phone bill net $100.00 tax $13.00 Total $113.00
Home in internet net $100.00 tax $13.00 Total $113.00
“A Shareholder of CCPC is using their cell phone and home internet for business purposes.”
Shareholders do not incur business expenses, so that would definitely be incorrect.
I would guess that a bookkeeper would have ZERO source documentation which would cause them to record a transaction in that manner by following the documentation.
Quite often shareholders do incur business expenses which they want to be reimbursed for. They bring expense reports with back up documents for items they wish to be reimbursed for and the bookkeepers do in fact reimburse them. Like I said, right or wrong, this is what we do out here in the world where bookkeepers reside. And CPA’ s give us journal entries to record yet other similar transactions. Probably these shareholders would more properly be called officers/directors/ who work as managers in the corporation where they are also shareholders - perhaps the only shareholder. We have had this discussion before and we bookkeepers forget the exact terms that we should be using but at least we understand other bookkeepers when they use the wrong terms.
There is legislative mandate for getting it right, so a business person is negligent if they don’t seek appropriate expertise.
The result of that should be that the correct thing gets done.
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Regarding “wrong terms”:
Well, all conversation would be rather nonsensical if one person was referring to an object as an “elephant”, the next referring to the same object as a “horse”, the next a “snake”, the next a “dog”, except they actually meant a “cat”, whilst the second person changed criteria halfway through and discussed a “bat”…
For my home based Income Tax corporation, I issue myself a T2200 form and claim my cell phone and internet cost as a deduction on my personal taxes vs reimbursing these costs from the business. But I recognize your point that the business computer is using the home’s Internet so should reimburse the home for part of those costs (vs claiming the internet portion on personal taxes). I’ve never considered that until now.
Joe’s responses leave me more confused than being helpful as it doesn’t answer the question on how to record such costs in the books (ie: reimbursement for home internet usage on the business computer).
Osiah raised a good point that directors or staff make business purchases all the time using personal accounts and need to be reimbursed. My purchase of my TaxCycle license (ordered online) was made using a personal credit card because I don’t have a corporate credit card. Is NiceGuys method the best way to record this expense in the books. When I worked in psychiatry, staff would sometimes purchase items for the hospital, purchasing same using their personal credit cards because they were at the store already and knew these supplies were needed. They are then reimbursed, either by cheque or out of petty cash. What is the best way to record these in the books?
I appreciate NiceGuys question, as it’s a good double check to insure I’m coding them correctly in my own books for my business.
@joe.justjoe1 's responses are 100% correct - I don’t dispute that. He says there are specific rules that deal with that. The reality is that some of us are not in the ideal or book world and so we make do. I believe @NiceGuy 's journal entry is appropriate. And I repeat that the CPAs I deal with seem to concur.
I have always attached original receipt from employee and categorized the payment to employee or petty cash journal for exactly what it was. Accountants either advised to do it this way or accepted it. Paper trail and original receipt is there for CRA.
If we can claim Business Use of Residence expenses based on a reasonable percentage, why is it wrong to claim business use of cell phone based on a reasonable percentage?
One can deduct reasonable expenses to earn income. In the case of a corporation, if the shareholder in the capacity of an employee uses his or her cell phone in the course of business, they should be able to claim a reasonable portion of that.
As long as the shareholders give me their receipts and the percentage they say they used it for business, I will claim the deduction.
Never had any problem with it in 20 years.
It is technically correct that shareholders do not incur business expenses, but everybody knows on this forum that it is short for “shareholders in their capacity of employees of the corporation”.
We are talking about shareholders that run their own business.
I am all for using correct terminology but is this not going a little too far?
IMHO your post is based on false premises in relation to the OP, and appears to indicate incorrect procedures in several places.
For example: “As long as the shareholders give me their receipts and the percentage they say they used it for business, I will claim the deduction.” would be an incorrect procedure.
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[“the shareholders” might have transaction expenses to do with their purchase or sale of their shares. Those would be accounted for in their personal records (if individuals) in the usual way for investment holdings.]
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The CPA responsible for this file should be mindful that It is not simply a matter of “terminology”, but rather a matter of LAW.
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To re-quote part of my earlier post:
"Bookkeepers cannot simply post entries out of thin air. Attempting to do so leads to basic fundamental errors, and is why this question has arisen in the first place."
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And for further emphases: " out of thin air.
and why this question has arisen in the first place."
“ book inventors ” run the risk of getting everyone into trouble…
If one can show that 40% of their text messages of phone call logs are from their clients, it is not out of thin air.
No court in the land will say that this unreasonable.
We should stop calling CEO’s, CFO’s,
General Managers etc who own shares, regardless of what % of the company they own, Shareholders - when the transactions we are dealing with relate to the role as employees of the Corporation.
Just for arguments sake, forget about terminology, or how we are recording it.
Just answer me this:
Are you honestly trying to say that @NiceGuy cannot claim 40% of his cell phone? Is he, or is he not legally allowed to claim 40% of his cell phone expenses, when he can proved he used his cell phone 40% for his corporation’s business?
There is not one judge that would disallow that. And that, in the end, is all that matters.
"Are you honestly trying to say that @NiceGuy cannot claim 40% of his cell phone? "
Yes. From his post, it appears that Niceguy is the BOOKKEEPER, so from his post, he is not even trying to claim any percentage of his cell phone.
And no, it is not possible to “forget about terminology” and at the same time comply with Income Tax Law, Corporate Law, Contract Law, etc…
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If everyone could “forget about terminology” tomorrow morning, by tomorrow afternoon we would have a 100% unemployment rate for lawyers…
@Rein
I own shares in Enbridge. Can I send them my telephone bill and ask for reimbursement?
joe know of what he says. I don’t read all the posts here, but from what I’ve read, people should be happy for the free education they get from joe.
