Tax rules, thresholds and administrative procedures can change. Confirm current official requirements and obtain advice for material transactions or unusual facts.
Payment by a corporation does not make a cost deductible
A personal mortgage payment, family vacation or home renovation does not become a business expense because the corporate card was used. The corporation may have a receivable from the shareholder, a shareholder benefit or compensation transaction.
Example
A corporation pays $15,000 of the owner's personal credit-card balance. The statement includes $2,000 of valid business travel and $13,000 of personal costs.
The business portion should be documented and posted to the correct expenses. The personal portion should not be buried in travel expense. It may be charged to the shareholder-loan account and resolved through repayment, salary, dividend or another supportable treatment.
Corporate tax and personal tax effects
The corporation may be denied a deduction for the personal amount. The shareholder may also have an income inclusion or taxable benefit. This can create tax at both levels, plus interest or penalties where reporting is late.
GST/HST
Input tax credits should not be claimed for personal consumption. Mixed invoices require allocation. A GST/HST return should be corrected where unsupported credits were previously claimed.
How to correct the books
Identify the date, amount and personal portion. Reverse incorrect expense and tax entries. Record the shareholder amount correctly. Decide how it will be repaid or reported and prepare the legal and payroll documentation.
Prevention
Use separate cards, limit employee access, review bank feeds monthly and require receipts. A clear owner-withdrawal policy is cheaper than reconstructing a year of mixed transactions.
This article provides general Canadian tax information and is not a substitute for tax, legal, financial or investment advice based on complete circumstances.