Line of Credit Credit Card

by Gayle
(Calgary, Alberta)

Thank you so much for putting together such a wonderful site for people like myself to go to and use as a resource tool.

It has answered so many of my questions and has made me more knowledgeable in areas I wasn't as clear about, which has resulted in me providing a better service for my clients.

My question:

I recently took on a new client that is incorporated and has been using a Line of Credit Visa Card.

This card gives customers credit to use for business needs. You only pay when you use your line of credit and there are no annual, monthly or application fees.

When I went through the Visa Statements I noticed them in my clients name not the company name. The bank does not put the company name on the card as the credit is based on the clients personal credit history.

Would my client have problems with Canada Revenue accepting this card for an incorporated company when the credit is based on my clients personal credit history and all the statements are in the client’s name?

In my opinion this type of card does not show a separation between my client (personally) and the company (separate legal entity).

Thank you.

Gayle
Calgary, Alberta

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Hi Gayle,

I believe the banks issue the "business" credit in the owner's personal name nowasdays as a way of getting a personal guarantee ... i.e. the owner can't hide behind the corporation.

In my opinion, the best solution is to have a credit card in the corporation's name.

I would be interested in how the owner wants the debt treated. Does the owner want the card expenses to be treated as a loan to the corporation or does s/he want to be reimbursed for the business expenses?

If the owner strictly uses the credit line only for business expenses and wants it treated as reimbursement, I would set it up as an Owed to Owner account.

If the owner wants it treated as a loan, I would still set it up as a current liability, but I would call the account Shareholder Loans.

Under either distinction, s/he has to keep all receipts and payment receipts. Interest would be fully deductible as it pertains solely to business expenses.

I would also think it would be prudent that if cash advances are taken, the cash be deposited and/or transferred into the bank account as a way of proving all transactions related to the corporation.

If the owner is mixing up business and personal purchases ... explain how this increases the cost of bookkeeping ... and the line of credit should NOT show on the books.

I would have the owner submit an expense account with all receipts attached. Interest charges would have to be prorated / allocated between the personal and business expenses. See CRA's IT-533 Interest Deductibility and Related Issues.

To repay the owner, issue a cheque in the owner's name. The corporation should not be making payments directly to the credit card company in this instance.

This is just my opinion.

It might be worth your while to phone CRA and ask them if this would be adequate / acceptable ... or if you work with an accountant, you can always ask their opinion.

P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.