Using Corporate Assets for Personal Benefit? Here is What You Need to Know.

Using corporate assets for personal benefit is a topic that often surfaces in tax discussions and legal cases. Recently, a court case highlighted the complexities and consequences of such practices.

A Cautionary Tale

A recent court case involved a shareholder who lived in a home owned by the corporation. The shareholder argued that there was no taxable benefit to him because he paid an equivalent amount in order to maintain the property. However, this argument was rejected due to inadequate documentation, a low valuation on the property and inability to prove that they had paid personally for use of the corporate asset. Bottom line: the shareholder was taxed for the entire benefit.

What is a Corporate Asset?

Corporate-owned assets include real estate, vehicles, and other valuable property. Here is what Canadian taxpayers, particularly shareholders of corporations, need to know about using corporate assets personally.

Tax Implications of Using Corporate Assets

Personal Use of Corporate Property When shareholders use corporate-owned assets for personal purposes, the value of the benefit received is considered taxable income. Personal use refers to situations where assets that are owned by the corporation are utilized for the shareholder’s private benefit, rather than for business operations. Examples include living in a corporate-owned home, using a corporate vehicle for personal trips, or accessing corporate facilities for personal events.

Fair Market Value Assessment The taxable benefit is generally determined based on the fair market value of the asset's use. This means that if a property is rented below market rates or used without proper compensation, the difference or the full market value can be deemed a taxable benefit.?This discrepancy underscores the need for accurate and comprehensive property valuations and documentation.

Best Practices for Shareholders

Maintain Detailed Records Ensure that all expenses related to the personal use of corporate assets are well-documented. This includes receipts, invoices, and proof of personal payments.?

Conduct Regular Valuations Engage professional appraisers to conduct regular valuations of corporate assets used personally. This helps in providing accurate data for tax reporting and minimizes disputes with tax authorities.

Consult with Tax Professionals Seek advice from tax professionals to understand the implications of using corporate assets and to develop strategies that comply with tax laws while optimizing personal and corporate tax positions.

Conclusion

Using corporate assets for personal benefit can have significant tax implications if not managed correctly. The recent court case serves as a reminder of the importance of documentation, accurate valuations, and clear financial separation. Shareholders should adopt best practices and seek professional advice to navigate these complexities effectively.

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This blog is not meant to provide specific advice or opinions regarding the topic(s) discussed above. Should you have a question about your specific situation, please discuss it with your GBA advisor.

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