If you own an incorporated business, pulling cash out of the company for a personal expense feels harmless: it is your corporation, after all. But the moment that money leaves the corporate bank account and lands in your pocket, the shareholder loan rules in Canada come into play, and they are unforgiving about timing. Get the repayment window wrong and the Canada Revenue Agency can add the entire balance to your personal income. This article walks through how the rules work and how to stay on the right side of them.
What counts as a shareholder loan
A shareholder loan is any amount your corporation advances to you (or to a person connected to you) that is not salary, a dividend, or a legitimate repayment of money you previously lent the company. It shows up on the balance sheet as a "due from shareholder" account. Common examples include drawing cash to cover a personal bill, letting the company pay your mortgage, or buying something personal on the corporate credit card and never squaring up.
The rules also reach beyond you personally. They can apply to loans made to your spouse, your adult children, or another corporation you are connected with. If value flows out of the company to someone in your orbit and it is not properly characterized as compensation, treat it as a shareholder loan until proven otherwise.
The one-year rule under subsection 15(2)
Here is the trap that catches owner-managers. Under subsection 15(2) of the Income Tax Act, if a shareholder loan is still outstanding at the end of the corporation's tax year that follows the year the loan was made, the full amount of the loan must be included in your personal income for the year you received it. In plain terms: you have until one year after the corporation's fiscal year end to repay.
Notice the deadline is tied to the corporation's year end, not the anniversary of the loan. A loan taken in January 2025 by a company with a December 31 year end must be repaid by December 31, 2026 — giving you almost two years. A loan taken in December 2025 has the same December 31, 2026 deadline — barely twelve months. The date you borrow matters less than which fiscal year the loan falls into.
If the balance is included in income, you pay tax on it at your marginal rate, exactly as if you had taken a bonus. The good news is that when you eventually repay a loan that was previously taxed, you can claim an offsetting deduction in the year of repayment. But you have effectively pre-paid tax and tied up cash in the meantime, which is rarely the plan.
You cannot game it with a quick round trip
A natural instinct is to repay the loan a day before the deadline and re-borrow the same money a week later. The Act anticipated this. The rules do not apply only when a repayment is genuine and not part of a "series of loans and repayments." If the CRA sees money bounce out, back, and out again around your year end, it can treat the repayment as hollow and include the loan in income anyway.
A repayment made with money you borrow right back is not a repayment — it is a rehearsal for an audit.
A real repayment means the loan is genuinely extinguished: you use personal funds, a declared dividend, or salary to clear the balance, and it stays cleared. Declaring a dividend or a bonus and applying it against the shareholder loan account is a legitimate way to settle the debt, provided it is properly recorded and reported.
The second cost: the deemed interest benefit
Even if you repay inside the one-year window and avoid the income inclusion, an interest-free or low-interest loan is not truly free. Under section 80.4, you are deemed to receive a taxable benefit equal to interest calculated at the CRA prescribed rate, reduced by any interest you actually pay to the corporation during the year or within 30 days after year end.
The prescribed rate is set quarterly by the CRA and has moved around considerably in recent years, so confirm the current rate before you calculate. The benefit is prorated for the portion of the year the loan is outstanding. To eliminate it, pay the corporation interest at least equal to the prescribed rate by the 30-day deadline — and if you do, the corporation records that interest as income.
The exceptions worth knowing
Not every advance triggers the income inclusion. The main carve-outs include:
- Bona fide repayment arrangements. Certain loans are exempt if, at the time they were made, bona fide arrangements for repayment within a reasonable time were in place — documented terms matter here.
- Ordinary-course lending. If lending money is part of the corporation's ordinary business (for example, a financing company) and the same terms apply as to arm's-length borrowers.
- Loans by virtue of employment, not shareholding. Where you receive the loan because you are an employee rather than because you are a shareholder, specific exceptions cover loans to buy a home, to acquire treasury shares, or to buy a vehicle used in your job — again, only with genuine repayment arrangements.
These exceptions are narrower than they sound. The employee exceptions in particular require that the loan be available to employees generally, or that repayment terms be documented and honoured. Do not assume you qualify without checking the specifics of your situation.
How to keep yourself out of trouble
Track the loan account monthly
The single biggest cause of shareholder loan problems is a "due from shareholder" balance that nobody watches until year end. Reconcile the account regularly so you always know whether you owe the company or it owes you, and by how much.
Plan your remuneration deliberately
Decide in advance how you will take money out — salary, dividends, or a repayment of amounts you actually lent the company. A shareholder loan is a bridge, not a compensation strategy. If you are living off draws, you likely need a proper salary or dividend plan so the balance gets cleared each year rather than ballooning.
Document everything
Where you rely on an exception or a repayment arrangement, put it in writing: loan terms, interest rate, and repayment schedule. Paper written after a CRA question carries far less weight than paper prepared when the loan was made.
Key takeaways
- A shareholder loan is any non-salary, non-dividend advance from your corporation to you or a connected person.
- Repay within one year of the corporation's fiscal year end, or the full balance is added to your personal income.
- The deadline follows the corporation's year end, not the date you borrowed — timing of the loan within the year matters.
- Repaying and re-borrowing the same funds around year end does not count; the repayment must be genuine.
- An interest-free loan still creates a deemed interest benefit at the CRA prescribed rate unless you pay interest on time.
- Reconcile the shareholder loan account regularly and plan your remuneration so the balance clears each year.
Shareholder loans are one of the easiest ways for a well-run corporation to stumble into an avoidable tax bill, and the fix is almost always about timing and record-keeping rather than anything exotic. If you are carrying a balance or planning a larger draw, let us map out the repayment window and a clean remuneration plan before your year end sneaks up. Book a consultation or explore our advisory services to make sure the money you take out of your company stays tax-efficient.
This article is general information, not tax, legal, or financial advice. Rules and figures are current as of 2026 and can change. Please confirm your own situation with Lewis Partners.