Can the owner of a company use money from the company to pay for mortgage?
By Gord Ahier | August 17, 2011
Jim asked:
I own a BC company (Ltd) and have money in the company profits. I have a mortgage on my principal residence which is variable currently a three per cent. Can I borrow money from my company and pay off my mortgage and then set up a loan and repay my company over say the next 10 years.
Gord Ahier answered:
As a general rule, when a corporation advances funds to a shareholder in the form of a loan, the full amount of the loan is included in the shareholder's income in the year the loan was made unless the loan was repaid within one year. There are a few exceptions to this rule where the loan is made by virtue of employment as opposed to shareholding. In this situation, the corporation could lend the funds to be used the acquire a home. However, this would rarely apply to most owner managed businesses, since this usually requires that the corporation would also make similar loans to other employees.
The readers question about using a loan to repay a personal mortgage does not satisfy this criteria since the funds were not used to acquire the home.
The rules governing shareholder loans are not overly complex, but are highly detailed. A tax professional should be consulted to determine the tax implications of any loan made from a company to a shareholder.