Intercompany Loans

by Veneer
(Canada)

See Comment Section For<br>How to Record a Vehicle Loan from a Sister Company

See Comment Section For
How to Record a Vehicle Loan from a Sister Company

How do I report transfers?

I transfer funds from a profitable business to another one that is not doing well to cover the expenses.

I don't know how to show the income, then the transfer so I don't pay income tax on the amount again.

Hi Veneer,

Intercompany transfers/loans are an advanced bookkeeping topic which could have tax consequences. I will not cover that.

Strictly from a "recording the entries" perspective, you want to set up Due To / From Accounts for each company. All transactions need to run through these accounts.

At year-end, you need to reconcile the two accounts as they should have the same balance. One company will show a receivable (or possibly an investment), the other company a payable ( or possibly a liability).

My advice is for you to speak with your accountant to avoid negative tax consequences.

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.

Comments for Intercompany Loans

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Oct 08, 2011

Intercompany Loans
by: Anonymous

Is a company loan to another company considered an expense for income tax purposes until it is paid back.

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I moved your question. Please read the above post.

Nov 25, 2011

Vehicle Loan from Sister Company
by: Jessica, Ottawa

Hi there,

I'm really stuck... I need to enter a vehicle purchase into QuickBooks.

I am doing the book keeping for two sister companies - we'll say Company A and Company B.

Company A purchased a vehicle in full and sold it to Company B. Company B will pay Company A back over 5 years at 3.9% interest.

What are the entries for Company B???

Help!

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Hi Jessica,

I assume that Company A purchased the vehicle because Company B didn't qualify for the loan.

You need to set up intercompany accounts for the two companies ... if they don't exist already. All the transactions will run through the intercompany account.

The bookkeeping entries for an intercompany transaction are generally:

Transfer of asset from Company A to Company B:

DR Loan Payable
CR Due to/from Company B

Transfer of funds from Company B to Company A:

DR Due to/from Company A
CR Cash in Bank

It is preferable when dealing with intercompany transactions, that actual cash transactions take place instead of just journal entries. So don't just journal a loan payment to Company A; physically transfer cash to Company A's bank account too.

Also make sure there is an actual written agreement between the companies.

Everything else is just normal bookkeeping. Click here on how to record the purchase of a vehicle purchased with loan financing.

Nov 25, 2011

GST/HST and Intercompany Loans
by: Lake

Jessica,

I forgot to remind you that you have to pay any GST/HST owing between the companies unless the paperwork for the election (under section 156 of the Excise Tax Act) to treat them as exempt supplies has been completed.

This election is available if certain conditions pertaining to activities, ownership and residency are met.

Oct 22, 2015

Loan from bank
by: Anonymous

1 - How do I record a loan taken from personal bank of the owner and paid by business bank account, every month

Nov 02, 2015

Loan from Bank
by: Lake

To answer this, I bopped over to my bookkeeping entries index listing found under "The Quick References " on the navigation bar.

Take a peek under Banking for lots of different entries.

The personal loan would be recorded as a Shareholder's loan if all the proceeds were deposited (lent to) the corporation.

If you are saying that the owner has a personal loan and the business is making the loan payments (i.e. the loan was not business related), then all loan payments on the personal loan would be considered a Shareholder's Withdrawal.

If the company is not incorporated, then they are owner contributions and owner draws not shareholder loans / withdrawals.

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