Professional Corporation Year-End

The corporation had been incorporated three years earlier and the practitioner had been drawing money as needed, without recording whether each withdrawal was salary, a dividend or a shareholder loan.

Personal and corporate spending ran through the same card, and the shareholder loan account had drifted into a debit balance large enough to create an income inclusion if it stayed there past the deadline.

What the Client Needed

The shareholder loan cleared before the year-end anniversary that would have made it taxable personally, a defensible split between personal and corporate expenses, and corporate and personal returns prepared together rather than by two people who never speak.

What We Did

We reconciled three years of the shareholder loan account, identified the personal expenses that had been paid by the corporation, and cleared the outstanding balance before the deadline through a declared dividend with the corresponding T5 issued.

Compensation for the year was set as a mix of salary and dividends: enough salary to generate RRSP contribution room and cover CPP, with the remainder as dividends to keep the practitioner below the next personal bracket. The T2 and the personal T1 were then prepared together so the numbers agreed on both sides.