What is a shareholder loan, and why does it matter?
Money you take from your corporation that isn’t salary or dividends sits in a shareholder loan account — and if it stays borrowed too long, CRA taxes it as income.
Every dollar that moves between you and your corporation lands somewhere. When you take money out that is not payroll and not a declared dividend, it books to your shareholder loan account — you owe the corporation.
Section 15(2), in plain English
The rule lives in subsection 15(2) of the Income Tax Act, and it says something blunt: if a corporation lends money to a shareholder (or someone connected to a shareholder), the full loan amount is included in the shareholder’s personal income for the year the loan was made — unless an exception applies. Parliament wrote it this way to stop owners from living on untaxed corporate cash indefinitely: without the rule, you could skip salary and dividends entirely and just “borrow” forever.
The one-year rule, with dates
The exception most owners rely on is subsection 15(2.6): the loan is not included in your income if it is repaid within one year after the end of the corporation’s tax year in which you borrowed it — as long as the repayment is not part of a series of loans and repayments. In concrete terms: if your corporation’s year-end is December 31, 2025, and you borrow $50,000 on March 1, 2025, you must repay it by December 31, 2026. Borrow the same $50,000 on January 15, 2026 instead — two weeks later, but in the next fiscal year — and the deadline moves to December 31, 2027. Repaying just before the deadline and re-borrowing just after is the “series” CRA disallows; the repayment has to be real.
Three ways to clear the balance
| Option | How it clears the loan | The trade-off |
|---|---|---|
| Repay it | Put the money back within the window | Needs personal cash on hand — and repay-and-reborrow patterns are caught |
| Salary or bonus | Declared as employment income and applied against the balance | Personal tax and payroll withholdings apply; the corporation gets a deduction |
| Dividend | Declared to the shareholder and offset against the loan | Paid from after-tax corporate profits; taxed personally at dividend rates with the credit |
Which mix costs least depends on your income, the corporation’s year, and what else you have planned — the same inputs behind the salary vs dividends decision. It is a call to make with an accountant before the deadline, not after it.
The other exceptions
Beyond repaying within the window, subsection 15(2.4) carves out certain loans made to a shareholder in their capacity as an employee (and, for the home and share loans, generally where the employee is not a major shareholder or the loan is available to employees generally):
- A loan to buy or refinance a home you will live in;
- A loan to buy a vehicle used in your employment duties;
- A loan to buy newly issued shares of the corporation from treasury.
Every one of them requires bona fide arrangements, made at the time of the loan, to repay within a reasonable time — a signed loan agreement with a schedule you actually follow, not an intention. The conditions are strict and easy to fail, which is why any large personal borrowing from your corporation should be papered with your accountant before the money moves.
Even a “good” loan costs something: deemed interest
A loan that survives Section 15(2) still triggers section 80.4: if you paid the corporation less interest than CRA’s prescribed rate, the shortfall is a taxable benefit to you. The prescribed rate is set quarterly — it is 3% for Q3 2026 (July–September) — and interest for a year must actually be paid by January 30 of the following year to count. The arithmetic is simple: $50,000 outstanding for a full year at a 3% prescribed rate, with no interest paid, is a $1,500 taxable benefit added to your income and reported on a slip. Not fatal — but not free.
What happens if you never repay
The full principal is added to your personal income for the year the loan was made — which usually means CRA reassesses a past year, with arrears interest running from that year’s balance-due date. It is taxed as straight income, with no dividend tax credit to soften it, and the corporation gets no deduction — the same dollars can effectively be taxed twice. One consolation: paragraph 20(1)(j) gives you a personal deduction in the year you eventually do repay a loan that was previously taxed. Small comfort, years late.
| Scenario | Tax consequence | How to fix it |
|---|---|---|
| Borrowed this year, repaid within the 15(2.6) window | No income inclusion; deemed-interest benefit at the prescribed rate for the time outstanding | Pay the prescribed interest by January 30 of the following year, or accept the small benefit |
| Balance still outstanding as the window closes | Full amount included in income for the year borrowed — no dividend tax credit | Clear it before the deadline: repay, or declare salary/bonus or a dividend against it |
| Repaid just before the deadline, re-borrowed just after | CRA treats it as a series — the inclusion applies as if never repaid | Make repayments real; change how you draw cash (regular salary or dividends) |
| Included in income in a past year, repaid now | Past year stays taxed; paragraph 20(1)(j) deduction in the year of repayment | Claim the deduction and stop the pattern — this round trip is the expensive one |
What draws CRA’s attention
- A loan balance outstanding across multiple year-ends — it is on your corporation’s balance sheet and T2 schedules, in plain view.
- Repay-and-reborrow around the deadline — the pattern the “series” rule exists for.
- Round-number transfers with no payroll or dividend paperwork — $5,000 monthly e-Transfers that match no T4 and no dividend resolution.
- No documentation — no loan agreement, no board resolution, no repayment schedule. If it is papered like a loan and behaves like a loan, it gets treated like one.
Winding the company down does not make a balance disappear either — an outstanding shareholder loan has to be dealt with before dissolution. If that is where you are headed, read how to close a corporation properly first.
How balances sneak up
It is rarely one big withdrawal. It is the corporate card at the grocery store, an e-Transfer to cover a personal bill, a “temporary” draw — unrecorded until year-end, when the accountant finds a five-figure balance and limited options.
The clean version
Books that are current catch the balance monthly, and your accountant clears it deliberately — salary, dividend, or repayment — on a schedule you chose, not one CRA imposes. That is the cadence taxifi is built for: books current every day, an accountant watching the balance, all under one flat monthly price.
This is general information, not tax advice for your situation. Get started and a Canadian accountant will give you the answer for your business.
Common questions
I took money out of my corporation this year. Is that a problem?
Not if it is dealt with deliberately — cleared as salary, dividends, or repayment within the allowed window. It becomes a problem when nobody notices until the deadline has passed.
Can my corporation lend me money for a house?
There are narrow exceptions with strict conditions for certain employee loans, and they are easy to get wrong. Treat any large personal borrowing from your corporation as a plan-with-your-accountant-first event.
When exactly does a shareholder loan have to be repaid?
Within one year after the end of the corporation’s tax year in which the loan was made, under subsection 15(2.6). With a December 31, 2025 year-end, money borrowed any time during 2025 must be repaid by December 31, 2026. The repayment also cannot be part of a series of loans and repayments — paying it back in December and drawing it out again in January does not count.
Do I have to pay interest on a shareholder loan?
If you pay the corporation less than CRA’s prescribed rate — 3% for Q3 2026, set quarterly — section 80.4 treats the shortfall as a taxable benefit to you for the time the loan is outstanding. Interest only counts if it is actually paid by January 30 of the following year. On modest balances cleared quickly the benefit is small; on large balances held all year it adds up.
Can I fix a shareholder loan after year-end?
Often, yes — the repayment window runs a full year past the year-end in which you borrowed, so a balance discovered at year-end can still be cleared with a repayment, a bonus, or a dividend before the deadline. The trap is discovering it late, when the clean options (spreading salary across a year, timing a dividend) have narrowed to whatever can be done in a hurry. Books that are reconciled monthly surface the balance while every option is still open.
What happens to a shareholder loan if I close the corporation?
It does not vanish — an outstanding balance has to be repaid or cleared as salary or a dividend as part of the wind-up, and a balance simply written off on dissolution is taxable to you. Distributing the corporation’s remaining assets while you still owe it money creates exactly the kind of mismatch CRA reviews. Deal with the loan account first, then dissolve.