Introduction

A shareholder benefit occurs when a corporation provides a personal benefit to a shareholder without proper tax treatment. This is one of the most common issues identified during CRA audits of owner-managed corporations.

Many shareholder benefit problems arise unintentionally, often from personal expenses being paid through the corporation without clear documentation or repayment. Understanding how the CRA defines and assesses shareholder benefits can prevent costly reassessments.

Key Takeaways

Shareholder benefits arise when personal expenses are paid by a corporation
These benefits are usually taxable to the shareholder
CRA closely reviews shareholder benefits during audits
Poor documentation increases reassessment risk

Who This Applies To

This applies to owner-managed corporations, incorporated professionals, and any business where shareholders also control day-to-day spending decisions.

How the CRA Defines a Shareholder Benefit

According to the CRA, a shareholder benefit exists when a shareholder receives something of value from the corporation and it is not included in income or repaid. Common examples include personal expenses paid by the corporation or assets used primarily for personal purposes.

These amounts are generally added to the shareholder’s personal income and taxed accordingly.

Common Situations That Create Shareholder Benefits

Shareholder benefits frequently arise from personal vehicle use, personal travel charged to the corporation, home expenses claimed without proper allocation, and personal purchases paid directly from corporate accounts.

Even when expenses feel business-related, the CRA looks at primary use and supporting documentation.

What This Means in Practice

If a shareholder benefit is identified, the CRA may reassess prior years, add income to the shareholder’s tax return, and apply penalties or interest. In some cases, GST/HST input tax credits may also be denied.

Proper tracking, clear separation of personal and corporate spending, and timely reimbursements reduce these risks.

Frequently Asked Questions

Can I repay a shareholder benefit later?
Sometimes, but timing and documentation matter.

Are shareholder benefits always intentional?
No. Many arise from poor record-keeping.

Does the CRA look at shareholder benefits often?
Yes. They are a frequent audit focus.

Closing

Shareholder benefits are one of the easiest ways for small issues to become expensive tax problems. Clear systems and proactive oversight help ensure personal and corporate finances stay properly separated.