Entering Shareholder Loans

Shareholder loans are loaned money to and from corporations and their owners. They can be powerful tools for tax planning and cash flow management. There are several ways to model such loans in Snap.

In this article:

  1. Corporation owes money to the Shareholder
    1. Model as a Corporate Non-Deductible Expense and Individual Non-taxable Income
    2. Model as a Corporate Debt and an Asset to the Individual
  2. Corporation is owed money by the Shareholder
    1. Model as an Individual Additional Expense and Corporate Other Non-taxable Income
    2. Model as an Individual Debt and an Asset to the Corporation
  3. Notes
1

Corporation owes money to the Shareholder

a. Model as a Corporate Non-Deductible Expense and Individual Non-taxable Income

The simplest way would be to consider the cash flow between the corporation and its shareholder when the loan is being repaid.

  1. On the Planning Page for the Corporation, enter the loan repayment in the Non-Deductible Expenses column.

  1. In the client's Scenario Setup -> Incomes, add a non-taxable Income for the amount of the loan.

Note: When the corporation already has some entries under All Expenses and Non-Deductible Expenses, be careful in updating these values.

b. Model as a Corporate Debt and an Asset to the Individual

The second option is to show the repayment of the loan as a withdrawal from an asset and a payment towards a corporate debt. The value of the loan will reflect in the corporate and client's Net Worth before being repaid.

  1. In the client's Scenario Setup -> Assets, add an additional asset for the balance of the loan. Set the type to Non-Registered and allocate 100% to Cash. Set up the Rate of Return to 0%.

  1. For the Corporation, in Scenario Setup -> Debts, enter a new Debt with the balance of the loan, 0% Interest Rate, and Interest Only as the Repayment Option.

  1. To repay the loan, withdraw the amount from the asset on the client's Planning Page -> Financial Assets by entering a negative value in the Contribution (Withdrawal) column. In the same year, on the corporate Planning Page -> Debts make a payment towards the loan by entering a positive value in the Paid column.

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2

Corporation is owed money by the Shareholder

a. Model as an Individual Additional Expense and Corporate Other Non-taxable Income

Again, this method simply follows the cash flow between the corporation and its shareholder when the loan is being repaid.

  1. On the Planning Page for the Corporation, enter the incoming loan repayment in the Non-Taxable Other Income column.

  1. In the client's Scenario Setup -> Expenses, add an Additional Expense for the amount of the loan with 0% Inflation. Enter the age in which the client will pay off the loan in both From Age and To Age to signify that it will be paid within one year.



b. Model as an Individual Debt and an Asset to the Corporation

The second option is to show the repayment of the loan as a withdrawal from a corporate asset and a payment towards the client's debt. The value of the loan will reflect in the corporate and client's Net Worth before being repaid.

  1. In the corporate Scenario Setup -> Assets, add an additional asset for the balance of the loan. Allocate 100% to Cash and set up the Rate of Return to 0%.

  1. For the Client, in Scenario Setup -> Debts, enter a new Debt with the balance of the loan, 0% Interest Rate, and Interest Only as the Repayment Option.

  1. To repay the loan, withdraw the amount from the asset on the Corporate Planning Page -> Financial Assets by entering a negative value in the Contribution (Withdrawal) column.

    In the same year, on the client's Planning Page -> Debts make a payment towards the loan by entering a positive value in the Paid column.

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3

Notes

  • If the Shareholder loan for your scenario is not a zero-interest loan, you can apply indexing and RoR.
  • If the loan is paid out in smaller payments over several years, enter smaller amounts in the Contribution/Withdrawal and Paid columns and copy them down until the loan is repaid.
  • You do not have to use the Corporations module to enter shareholder loans — entering the information on the client's individual side only will properly model their cash flow.

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