Understanding the Dos and Don’ts
As a small business owner or entrepreneur, you may sometimes consider transferring money online from your company’s account to your personal account, especially if your business account has a surplus of cash. But is it really legal to do this in Canada?
Try Wise or Business Money Transfer Apps like TangPay one of the best money Tranfer app
The Simple Answer
In the simplest terms, yes, transferring money from your business account to your personal account is completely legal. However, you need to take into account numerous stipulations and rules before making such a transfer.
What Should You Consider?
Always consider the legal and tax implications when transferring money out of your business account. The key here is to ensure that you follow good business practices, keep proper documentation, and comply with Canadian tax laws.
- Document The Transaction
Transactions from a business account to a personal account should be documented as either a salary, dividend, or a loan. Each type of transaction has its own tax and legal implications. - Compliance With Tax Laws
Transferring money as a salary implies that you are an employee of the company. This payment should be reported to the Canada Revenue Agency (CRA), and income tax will need to be withheld.
If the transfer is declared as a dividend, you are taking the profit from your company, and the tax implications will be different than those of a salary.
Declaring the transfer as a loan means that the company intends to get the money back from you at some point.
Avoid These Mistakes
While it’s legal to make such transfers, there are a few critical mistakes that you’ll need to avoid:
- Mixing Personal and Business Expenses
One major risk is the commingling of personal and business finances. This muddling of funds can lead to legal complexities, problems with the CRA, and personal liability issues if your business gets sued. - Siphoning Off Business Cash without a Valid Reason
Draining the company’s funds for personal use without a solid reason can cause instability and may hamper the growth and operations of the business.
Remember
While it is entirely legal to transfer money from your business account to your personal account, always maintain clear documentation, pay any required taxes, and take a strategic approach to these transfers.
Remember, when in doubt, consult with a business lawyer or accountant to ensure your practices are above board. This will not only save you from potential legal repercussions but also keep your business healthy and growing.
