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Dividend & Bonus issued to Shareholder to clear "Due to Shareholder" account question

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  • Jan 5th, 2013 3:46 pm
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[OP]
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Jul 2, 2012
527 posts
11 upvotes

Dividend & Bonus issued to Shareholder to clear "Due to Shareholder" account question

When a shareholder of a private corporation takes out more money than what was put in and owes the corporation, why would they be issued a dividend or a bonus? I read as much as I could find and all I can get from it is that it serves as tax consequences for them. The dividends will be taxable as well as the bonus. But I cant wrap my head around why the corporation would issue them more money, when they already owe the company money, even though a portion of that will be paid in taxes. Anyone see what I mean? Does anyone have the patience to explain?

Thanks in advance
7 replies
Jr. Member
Aug 29, 2012
105 posts
4 upvotes
Greater Vancouver
Would that excess not be classified as a shareholder loan? If so, the tax consequences will be a taxable benefit for the shareholder at the difference between prescribed ITA interest rates and the actual interest rate charged. In this case, an interest-free shareholder loan would yield a taxable benefit equivalent to the prescribed ITA interest rates.
[OP]
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Jul 2, 2012
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The excess meaning what? The dividends issued to them? From what I understand is that due to shareholder is a liability account and when it is a credit the "corporation owes the shareholder" and when it is a debit than that means the "shareholder" owes the company money, because during the year he/she took too much out in excess of what was in there. So if they dont put it back at their year end, than they are issued a dividend or bonus by the corporation so that the shareholder can be taxed on the income.
Deal Addict
Jul 29, 2008
2210 posts
282 upvotes
BC
krissypoo27 wrote:
Jan 5th, 2013 12:07 am
When a shareholder of a private corporation takes out more money than what was put in and owes the corporation, why would they be issued a dividend or a bonus? I read as much as I could find and all I can get from it is that it serves as tax consequences for them. The dividends will be taxable as well as the bonus. But I cant wrap my head around why the corporation would issue them more money, when they already owe the company money, even though a portion of that will be paid in taxes. Anyone see what I mean? Does anyone have the patience to explain?

Thanks in advance
Basically, the company declares a dividend because do your own homework.

Ok, a hint, they declare a dividend. They don't actually pay it out because it's already paid out. The transaction of recording a dividend and paying a dividend are different things.
Member
Aug 17, 2011
446 posts
135 upvotes
CALGARY
The shareholder is issued a dividend precisely because they owe the corp money (Dr. balance in the SH loan account.) Think about the entry:

Dr. Dividends $100
Cr. SH loan $100

The above reduces the balance the SH owes the corp by $100. Issue a large enough dividend and you'll eliminate the dr. bal in the SH loan account completely.

As for the bonus, that is occasionally done to eliminate any taxable income in the corporation.
[OP]
Sr. Member
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Jul 2, 2012
527 posts
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champdood wrote:
Jan 5th, 2013 1:47 am
Basically, the company declares a dividend because do your own homework.

Ok, a hint, they declare a dividend. They don't actually pay it out because it's already paid out. The transaction of recording a dividend and paying a dividend are different things.
Ok I got that about the declaring a dividend but what about an actual bonus where they cut a cheque?
Jr. Member
Aug 3, 2010
154 posts
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Vancouver
krissypoo27 wrote:
Jan 5th, 2013 3:32 pm
Ok I got that about the declaring a dividend but what about an actual bonus where they cut a cheque?
You get the bonus money. Then you immediately repay the company to get rid of the loan amount.
[OP]
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Jul 2, 2012
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JuanExprales wrote:
Jan 5th, 2013 3:34 pm
You get the bonus money. Then you immediately repay the company to get rid of the loan amount.
Ok good now this is making sense. Thanks!
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