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What is a Schedule 11?​

September 23, 2015

Tax Question:

What is schedule 11 as part of a T2 corporate tax return?

Facts:

Schedule 11 is used to report special transactions with shareholders, officers or employees that the Canada Revenue Agency (CRA) would like to be aware of.

Discussion:

A corporation is required to report payments credited to the account of shareholders, officers or employees that were not part of their wages or reimbursement of expenses. When a shareholder makes a personal deposit into the company for cash flow reasons, they receive a credit to their shareholder loan account. They can draw these funds out without tax consequences whenever cash flow is available.

A corporation is required to report assets sold to or purchased from shareholders, officers or employees including those for which an election was made under Section 85. The normal rules for transferring assets between related parties require the transfer price to be set at fair market value (FMV). This disclosure is to stop taxpayers from entering into non-arms-length transactions where they have disposed of an asset either above or below the FMV to gain a tax advantage.

A corporation is also required to report loans or indebtedness to shareholders, officers and employees that were not repaid by the end of the taxation year. Whenever a shareholder borrows money from a corporation, the amount of funds is tracked in the shareholder loan account. As long as you have injected more money than you have taken out, there are no tax consequences. When the shareholder owes the company money, the amount owing should be included in the shareholder’s income and therefore pay tax on it. However, if the shareholder repays this loan within one year after the end of the taxation year of the corporation, it will not be assessed as income. This disclosure allows CRA to identify balances that should be treated as taxable income.

If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.

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