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Tax Implications for business startup

Tax Implications for business startup

Old Jan 3rd 2008, 1:24 am
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Default 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
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Old Jan 3rd 2008, 2:02 am
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Default 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.
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Old Jan 3rd 2008, 2:08 am
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Default Re: Tax Implications for business startup

Originally Posted by Judy in Calgary
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.
Thank you for your input and yes the repayment will be in pounds.
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Old Jan 3rd 2008, 3:11 pm
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Default 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.
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Old Jan 3rd 2008, 8:10 pm
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Default 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.
That is a very pertinent piece of information, JonboyE. I'm very glad you supplied it.
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Old Jan 3rd 2008, 10:16 pm
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Default Re: Tax Implications for business startup

It is 10%.
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