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Business versus personal…

20 Feb

Business versus personal…

… is a topic that always requires discussion.  A corporation is really an individual entity that is to operate independently of its shareholders and officers, and a sole proprietorship is best treated the same way.

Often a business owner will incur expenses that are related to the business by using personal cash, a personal bank account, or a personal credit card.  These are legitimate expenses for the business, but they create some murky waters for Canada Revenue auditors should they come looking.  It is sometimes difficult to make clear that a certain purchase was a business expense.  For example, take a customer out for lunch to discuss their new bathroom renovation project.  A legitimate business expense, although if you pay using your personal credit card it is not as clear as you think.

A clean and accurate paper trail is really important to provide justification for your expenses.  Using a business account or business credit card to pay helps to create that neat paper trail through the bookkeeping records of the company without having to open up your personal records to CRA.  This becomes even more important if you have family involved in the company and who may also pay for business related items with personal payment methods.  Now, they too will have to provide their personal financial records for examination by the CRA.  Similar requirements exist for shareholders of the company, whose family members may have to provide access to their financial records.

At the end of the day, it is simpler for all involved (CRA included) to keep business and personal quite separate from each other.  Establish business only bank accounts with associated debit cards and business-identified credit cards to make the purchases necessary to keep your business running.  It might even be advisable to assign purchasing duties to certain people in the organisation to further segregate the various corporate duties and responsibilities.

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