# Business vs personal expenses: what to do when they mix Personal spending on the business card isn't an expense. How to book it — shareholder loan for a corporation, owner's draw for a sole proprietor. Published: 2026-10-04 · Spark --- Every small business owner has done it: groceries on the business card, a business software subscription on the personal one, a dinner that was half client and half friends. Mixing business and personal spending isn't a crime. Booking personal spending as a business expense is where the trouble starts — for your taxes, your GST/HST return, and any lender who reads your books. The fix is not to never make the mistake. It is to know where each kind of transaction goes when it happens. ## The rule: personal spending is never an expense The CRA is plain about it: you can't deduct personal expenses, so you only report the business part of an expense on your T2125 ([CRA, expenses section of Form T2125](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/completing-form-t2125/expenses-section-form-t2125.html)). For a corporation the logic is the same; only the entry is different, as below. For what you *can* deduct, see [small business tax deductions](/guides/small-business-tax-deductions-canada). GST/HST follows. You can claim input tax credits only to the extent a purchase is for your commercial activities; anything you bought for your personal consumption, use or enjoyment doesn't qualify ([CRA, input tax credits](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/calculate-prepare-report/input-tax-credit.html)). A personal purchase booked as an expense overstates both your deductions and your ITCs — two errors from one transaction. So when personal spending hits the business account, it doesn't disappear. It goes somewhere else on the books. Where depends on how your business is set up. ## If you're a sole proprietor: owner's draw A sole proprietorship and its owner are the same taxpayer. Money moving between you and the business isn't income or an expense — it's you moving your own money. Bookkeepers record it in an equity account called **owner's draw** (or drawings). - $180 of groceries on the business card → debit owner's draw $180, credit the card $180. - You transfer $3,000 from the business account to your personal account → owner's draw $3,000. - You pay a $60 business software bill from your personal card → expense $60, credit **owner's contribution** (or a negative draw) $60. Draws are not deductible. The CRA says salaries or drawings paid or payable to you or your partners are not deductible ([CRA, line 9060](https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/sole-proprietorships-partnerships/report-business-income-expenses/completing-form-t2125/line-9060-salaries-wages-benefits-including-employer-s-contributions.html)). As a sole proprietor you pay tax on the business's profit, not on what you take out — so a draw doesn't change your tax, but booking the same $180 as "supplies" would lower it, wrongly. ## If you're incorporated: the shareholder loan A corporation is a separate taxpayer. When it pays for something personal of yours, the company has, in effect, lent you the money. That is recorded in a **shareholder loan** account (also called "due to/from shareholder"). It runs in both directions: - **The company pays a personal expense of yours** → you owe the company. The balance is an asset to the company ("due from shareholder"). - **You pay a company expense personally**, or lend it money → the company owes you. The balance is a liability ("due to shareholder"). When the company later pays you back, it is repaying a loan, not paying you. Most owners have both kinds of transactions in a year, and the account nets them. The year-end balance is what matters. ### Why the year-end balance matters If you owe your corporation money, the Income Tax Act generally requires the loan to be included in your personal income. There's an exception if the loan is repaid **within one year after the end of the corporation's tax year in which it was made**, and the repayment isn't part of a series of loans and repayments ([CRA, Income Tax Folio S3-F1-C1](https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-3-property-investments-savings-plans/folio-1-shares-shareholders-security-transactions/income-tax-folio-s3-f1-c1-shareholder-loans-debts.html)). An example. Your company's year ends December 31, 2026. During 2026 the company paid $8,400 of your personal spending, and you paid $1,900 of company expenses on your own card. - Net: you owe the company $8,400 − $1,900 = **$6,500** - To keep it out of your income under that exception, it needs to be cleared by **December 31, 2027** — and not by simply borrowing it again. Owners usually clear it by declaring a salary, bonus or dividend that is applied against the balance, or by paying it back. Which one is right is a tax decision for your accountant, and [salary vs dividends](/guides/salary-vs-dividends-canada) sets out the trade-offs. The bookkeeping job is to make sure the balance is accurate, so that decision is made on the right number. A loan from your company at no or low interest can also create a separate taxable interest benefit ([CRA, Income Tax Folio S3-F1-C2](https://www.canada.ca/en/revenue-agency/services/tax/technical-information/income-tax/income-tax-folios-index/series-3-property-investments-savings-plans/folio-1-shares-shareholders-security-transactions/income-tax-folio-s3-f1-c2-deemed-interest-benefit-shareholder-loans-debts.html)). Another reason not to let it grow. ## Mixed transactions: split them Some charges are partly both: - **A phone plan** used for the business and the family. Book the business share to telephone, the rest to draw or shareholder loan. - **A vehicle** — see [claiming vehicle expenses](/guides/vehicle-expenses-small-business-canada); the split comes from your logbook, usually at year end. - **Your home** — see [business-use-of-home expenses](/guides/home-office-expenses-self-employed-canada). - **A dinner** that was part client meeting, part friends. Book only the client part as [meals and entertainment](/guides/meals-and-entertainment-expenses-canada). Splitting one transaction into two lines is normal bookkeeping. Picking whichever category gives the bigger deduction is not. ## How to stop it happening (mostly) - **Separate accounts and cards.** A business bank account and a business card used only for business. This alone removes most of the problem. - **Pay yourself on purpose.** A regular transfer to your personal account — a draw, or salary through payroll — instead of spending directly from the business account. - **When it happens anyway, note it.** Write "personal" on the receipt or in the transaction memo the day it happens. In March you won't remember what the $64 at Costco was. - **Review the shareholder loan or draw account monthly.** It should contain only personal spending and transfers to you. Anything else is a miscategorization. ## Why lenders care If you'll ever apply for business financing, this matters beyond tax. A lender reading your statements and financials wants to see what the *business* earns and spends. Personal spending buried in expenses makes the business look less profitable than it is; a large unexplained shareholder loan raises questions you'll have to answer. Clean separation is one of the cheapest ways to make your file easier to read. See [how to do bookkeeping for a small business in Canada](/guides/how-to-do-bookkeeping-for-a-small-business-in-canada) for the routine that keeps it that way. ## Let the software ask [Spark Books](/books) never books personal spending as an expense. When a transaction looks personal — a grocery store, a streaming service — it asks, and posts your answer to the shareholder loan if you're incorporated or to owner's draw if you're a sole proprietor. It remembers the answer for the next charge at the same place, so you only answer once. ## The short version - Personal spending is never a business expense, and it never gets an ITC. - Sole proprietor: book it to **owner's draw**. Draws aren't deductible. - Corporation: book it to the **shareholder loan**. If you owe the company at year end, clear it within one year after that year end, or it can become personal income. - Split mixed charges; don't round them in the business's favour. - Separate accounts prevent most of it. [Spark Books](/books) is free: upload your bank and card statements and it sorts the business spending into a Canadian chart of accounts and the personal spending to where it belongs. No card needed.