Three ways business and personal money get mixed, and what each one costs
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A personal account taking client payments, one card for everything, a company account treated as a wallet. Each is easy to start and expensive to untangle.
Almost every small business starts with some mixing. It is rarely dishonest. It is convenient: one account, one card, one less monthly fee.
The cost arrives later, twice. The first time is at year end, when someone has to sort a year of transactions by hand. The second is at a CRA review, when it falls to you to explain each deposit and each expense, and the records do not separate them for you.
This guide covers the three kinds of mixing we see most, what each one costs, and how to fix it.
1. Client payments into a personal account
A client e-transfers to your personal chequing account. A cheque made out to the business goes into your personal account because it was quicker.
There is no rule that a sole proprietor must have a business bank account. The problem is proof. When the CRA reviews a return, it can compare what went into your accounts with the income you reported. Deposits you cannot explain can be treated as unreported income, and the job of showing which deposits were business revenue and which were a friend paying you back falls to you. In a mixed account, that means rebuilding years of transfers from memory.
- Open an account used only for the business. For a sole proprietor this can be a second personal account kept strictly for business. For a corporation, the account must be in the corporation’s name.
- Every business receipt goes into that account. Nothing personal does.
2. One credit card for everything
The reasoning is usually the rewards: the card pays good cash back, so the laptop and the groceries both go on it, and the business ones get picked out later. In practice, a year of mixed statements does not get sorted accurately. Personal spending ends up in business expenses, and business costs get missed.
The consequences depend on your structure.
- Sole proprietor: personal costs claimed as business expenses are disallowed, with interest. If the CRA sees the claim as more than an honest mistake, penalties can follow.
- Corporation: the company loses the deduction. Personal spending paid by the company can also be treated as a taxable benefit to you as a shareholder, so it is taxed in your hands as well. Any GST claimed back on those purchases has to be reversed too.
The fix is one card used only for business. When a business cost does land on a personal card, keep the receipt and record it as paid by the owner. In a corporation, the company can then reimburse you against the receipt.
3. The company account as a personal wallet
This one only applies once you are incorporated. A corporation is a separate person in law, and money in its account is not yours until it is paid to you properly.
When money moves from the company to you to pay the mortgage or the car, with no payroll and no dividend behind it, the books record it as a shareholder loan, meaning money you owe the company. The rule on those is strict. If the loan is not repaid within one year after the end of the corporation’s tax year in which you took it, the full amount is added to your personal income for the year you took it. That is retroactive, so it means amending a return you already filed.
A repayment made just before the deadline and followed by a fresh withdrawal can be treated as no repayment at all. A loan left outstanding at no interest can also create a separate taxable benefit.
There are four proper ways to move money from the company to you:
- Salary through payroll, with source deductions remitted and a T4 at year end.
- Dividends, declared by resolution and reported on a T5.
- Reimbursement of business expenses you paid personally, against receipts.
- Repayment of money you lent the company.
A shareholder loan is legitimate as a short-term arrangement, as long as it is tracked and repaid on time. The problem is the loan nobody noticed until year end.
What running payroll in BC actually involves →
Get the books ready for a corporate year end →
The setup that prevents all three
- One bank account for the business only.
- One card for the business only.
- Receipts attached to the transaction in your accounting software, weekly rather than yearly.
- A monthly reconciliation, so that a personal charge on the business card is caught within weeks, not at year end.
What you should receive from monthly bookkeeping →
Questions people ask
Does a sole proprietor legally need a business bank account?
No. But one account kept only for the business is the single cheapest way to make your income provable. A corporation needs an account in its own name.
I paid for something for the business on my personal card. Can I still claim it?
Yes, with the receipt. Record it as paid by the owner. In a corporation, the company can reimburse you. What you cannot do is claim the whole personal card statement.
I have been mixing for years. Is it too late?
No. It is fixable, and it is the most common reason people call us. It gets harder the longer it sits, because the records needed to separate the transactions get older and harder to find.
What to gather before catching up your books →
Separate first, then everything else is easier
A separate account and a separate card cost almost nothing to set up. They make every later job cheaper: the monthly books, the year-end return, and any question the CRA asks.
Orbis Accounting keeps the books for small businesses across Metro Vancouver, in English and Mandarin. If your accounts are already mixed, tell us how far back it goes, and a written plan and a fixed price follow within one business day.
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