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Tax Implications for business startup
Hello everyone
Happy new year to one and all. Hope you all had a fab time and are enjoying the festive period. Need some advice - I'm about to start a business and have been offered some start up money from a relative from the UK. What are the implications with the tax man? It is a loan but I've been told it should not be taxable. Is anyone able to offer me some advice? Thank you Wayne |
Re: Tax Implications for business startup
My guess is that you should make the agreement formal. That is, your business and the person who is lending you the money should enter into a written contract that states the terms under which the loan is being provided and the terms under which your business will re-pay it.
During 2007, I asked my bank about borrowing money from them for a business. If I had borrowed the money, I would have opened a personal line of credit. The bank employee with whom I discussed it told me that the interest that my company would pay would be an expense that could be used to offset the taxes that I owed. As it turned out, I managed to come up with the money out of my own pocket and didn't need to resort to a loan after all. A complicating factor that I can anticipate in your case is that the exchange rate is bound to fluctuate in the future. I'm assuming that your relative will want to be kept "whole." That is, I imagine he/she will want to be paid back in British pounds, regardless of what happens to the Canadian dollar. |
Re: Tax Implications for business startup
Originally Posted by Judy in Calgary
(Post 5732100)
My guess is that you should make the agreement formal. That is, your business and the person who is lending you the money should enter into a written contract that states the terms under which the loan is being provided and the terms under which your business will re-pay it.
During 2007, I asked my bank about borrowing money from them for a business. If I had borrowed the money, I would have opened a personal line of credit. The bank employee with whom I discussed it told me that the interest that my company would pay would be an expense that could be used to offset the taxes that I owed. As it turned out, I managed to come up with the money out of my own pocket and didn't need to resort to a loan after all. A complicating factor that I can anticipate in your case is that the exchange rate is bound to fluctuate in the future. I'm assuming that your relative will want to be kept "whole." That is, I imagine he/she will want to be paid back in British pounds, regardless of what happens to the Canadian dollar. |
Re: Tax Implications for business startup
If this is a loan there are no tax implications on the receipt of the money. However, if you pay interest back to the UK you will be required to withhold Canadian taxes and remit them to the Canada Revenue Agency.
The regular rate is 25% but I think the tax treaty reduces this to 10% (I'll check later as I have a lot on this morning). The person receiving the interest in the UK will be able to claim the Canadian taxes withheld as a credit against the UK tax they owe on the interest received. |
Re: Tax Implications for business startup
Originally Posted by JonboyE
However, if you pay interest back to the UK you will be required to withhold Canadian taxes and remit them to the Canada Revenue Agency.
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Re: Tax Implications for business startup
It is 10%.
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