Shareholder Benefits: What You Can’t Expense

(Image Credit: Bigstock)

Like eating a combo of chicken and waffles, shareholder benefits are pretty awesome, but they are also a little confusing.

The main thing to remember is that transactions that contain a personal component aren’t fully deductible for business purposes. If you don’t remove the personal component, the CRA may disallow the claim, and it can appear in your personal income as a benefit leading to double taxation.

Need some help with shareholder benefits?

We’ve made this quick guide of things not to deduct to help keep you on the right track… 

Business trip or family vacation?

When you go on trips that are both for personal and business purposes, don’t claim they are entirely for the latter. Although some folk do this, it is pretty obvious to the CRA when it involves their spouse and five children and they are staying at a family resort for two weeks, but the conference or course is only for a weekend.

Also don’t forget to keep the details of this conference or course (duration, cost, etc.) in order to claim that portion.

Tasty meals

Don’t claim meals that you are eating throughout the day, by yourself. Sure, only 50 per cent of meals are deductible, but you have to be eating them with a client or potential client for the purposes of earning business income.

Essentially, if there is no business talk (and this can’t be to yourself) the deduction will be denied. Make sure you keep records of who you had this meal with and what it was for, and don’t be surprised if the CRA decides to give your client a quick call to verify.

Cruising around town

If you have a car that you only share with your spouse to do things like get groceries, take your spouse to the spa and drive to the gym, don’t claim the gas, repairs, insurance and parking all for business.

It’s a good idea to keep track of the kilometers driven for business trips and reimburse yourself with an acceptable rate per kilometers. Once again, a log with details of the business meeting and where it took place will be required for confirmation.

Company Overflowing With Cash

Don’t use the company’s cash for personal expenses and loans even though it may seem like a great idea since the corporate tax rate is much lower than the personal rate.

If there is a debit shareholder balance at year-end (you took out or used more money than you put back in for personal use), you may have to claim it as personal income and may also be assessed with interest.

Keep the business and personal side of cash separate and plan for the year either by paying yourself a salary or using dividends. There are many other options available to use this cash in your company.

Fore…

You may play some golf on the weekends with your colleagues or clients, but keep in mind that these fees are not deductible, so don’t claim green fees at a golf course.

However, if you happen to have time after the ten hour match for a meal at the course and it meets the criteria of a business meal, feel free to claim this.

–

And for some last nuggets of wisdom, the CRA is likely to audit shareholder benefit transactions, so make sure you keep justifiable records for the business component of the expenses.

And in case you are wondering, the magic number to keep receipts is for six years.

If you have any questions about shareholder benefits or where’s the best place to eat chicken and waffles in Vancouver, drop us a line. We love to chat.