COMMON MISTAKES IN ORGANIZING YOUR INCORPORATED BUSINESS
Your corporation is a separate legal entity so make sure that you keep it separate. You need to have a separate bank account for the corporation and make sure that all of the corporation’s revenues go into that account and all of the expenses, come out of that account. Preferably write checks for all of your expenses to keep better track on what expenses you are incurring. If you make the mistake of paying a lot of expenses by etransfer you are going to have a much more difficult time keeping track of the expenses and reporting them properly to CRA.
The end result may be that CRA disallows many of these expenses. The worst thing you can do is to pay expenses in cash! That just creates much more work for your accountant and bookkeeper and again you’re going to miss things.
Absolutely do not comingle personal and corporate funds. Write a check to yourself for your wages or draw or shareholders loan as the case may be.Never, ever withdraw cash from the corporate account for your personal use. That would just invite an audit by CRA. If many of these cash withdrawals are being intended for corporate expenses, CRA will likely disallow them, especially if you can’t prove that the cash was actually used to pay for corporate expenses. Again don’t pay any corporate expenses in cash; write checks for everything. Record every single expense that you incur. After all you are allowed by law to claim these as legitimate expenses but you can’t claim them if you don’t keep track of all of them.
Failure to record these expenses properly will mean that your business expenses are reduced, your income is increased and your taxes are increased! Why would you want to do that??
Record everything that you take out of the corporation personally. At the end of the year your accountant will discuss with you how to apportion that money between wages or salary, shareholders loans and dividends. There are severe consequences to taking money out as a shareholders loan if you don’t pay the money back within a year or don’t have a proper legitimate loan agreement signed with the corporation. If you do this, any loans you take out will be treated by CRA as personal income and again why would you want to do that.
Stemp & Company
1670, 734 – 7th Avenue SW Calgary, Alberta T2P 3P8
Bill Stemp
403-777-1125 bill@stemp.com
Kari Ivey
403-777-1123 kari@stemp.com
Tasha Traynor
403-777 1129 tasha@stemp.com
