A shareholder benefit typically arises when a shareholder receives a benefit from the corporation that is not in the form of salary, dividends, or loan repayment. This can include:
Personal Use of Company Assets: When a shareholder uses company assets (e.g., a car or property) for personal purposes without proper compensation.
Below-Market Loans: If a shareholder receives a loan from the company at an interest rate below the market rate, the difference between the market rate and the actual rate may be considered a benefit.
Non-Arm’s Length Transactions: If the corporation engages in transactions with the shareholder or related parties that are not at fair market value.
Forgiven Debts: If the corporation forgives a debt owed by the shareholder, this forgiveness can be considered a benefit.
Housing and Lodging: If a corporation owns a property, such as a cottage, and a shareholder uses it for personal purposes, it results in a taxable benefit. Renting out the property to others while occasionally using it personally can also trigger this tax liability.
Travel Expenses: Travel costs for business purposes are generally deductible, including expenses related to business meetings, conventions, and trade shows. However, if a spouse or family member accompanies the shareholder on a business trip, only the business portion of the travel expenses may be deducted by the company.
In these scenarios, the benefit is typically reported as income on the shareholder’s personal tax return, and its value may be subject to taxation.
Any benefit conferred on a shareholder by a company must be reported on the shareholder's personal tax return unless the shareholder has reimbursed the company in a timely manner or had credit in their shareholder loan before receiving the benefit. Taxable benefits should be reported on T4 Box 14 or T4A Box 117.
