Shareholder Loans

Shareholder Loan Tax Rules in Canada

The corporate bank card is right there, the cottage dock needs fixing, and your bookkeeper will "sort it out at year-end." That is how most shareholder loans are born. They're not illegal and not automatically taxed, but they come with a clock, and when the clock runs out, CRA taxes the amount in the worst way available. Here are the rules, the deadline math, and the cheaper ways to clear the account.

How the Shareholder Loan Account Works

Money moves	Account	Tax effect
Company pays your personal expense, or you withdraw cash without salary or a dividend	Debit: you owe the company	Clock starts; see below
You put your own money into the company, or pay a business expense personally	Credit: the company owes you	You can take it back tax-free
Salary, bonus or dividend credited to the account	Reduces what you owe	Taxed as salary or dividends, as usual

The rules also catch loans to people connected to a shareholder, such as a spouse or children, and loans to a shareholder from a related corporation.

The One-Year Rule (Subsection 15(2))

A loan to a shareholder is added to the shareholder's income unless it's 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.

Corporation with a December 31 year-end	Date
Company pays $40,000 for your cottage dock	March 1, 2026
End of the tax year the loan was made	December 31, 2026
Repay by	December 31, 2027
If not repaid: added to your income for	2026 (CRA reassesses that year)

So the real window is between one and two years, depending on when in the corporation's year you took the money. A withdrawal on the first day of the year gets almost two years; on the last day, one year and a day.

Why the Income Inclusion Is the Worst Option

Ontario owner earning $80,000 of salary, 2026. Three ways the same $40,000 ends up taxed:

	Loan added to income	Declared as a dividend	Paid as a bonus
Your extra personal tax	about $12,880	about $9,960	about $12,790, plus a little CPP2
Corporate tax on the $40,000 (11.2%)	$4,480, no deduction	$4,480	$0 (bonus is deductible)
Total	about $17,360	about $14,440	about $12,790

The inclusion is taxed like salary but the company gets no deduction, so the same profit is taxed twice. Clearing the account on purpose, before the deadline, with a bonus or dividend, beats letting CRA do it for you. If you repay a loan later, after it was included, you can deduct the repayment in the year you repay it, as long as it isn't part of a series of loans.

The Interest Benefit

A loan that stays within the rules still isn't free. If you pay no interest or below-market interest, you have a taxable benefit equal to interest at CRA's prescribed rate on the balance, minus interest you pay by January 30 of the following year. At 3%, a $40,000 balance for a full year means about $1,200 of extra income. The benefit doesn't apply to a loan already added to your income under the one-year rule; CRA taxes it once, not twice.

The Series-of-Loans Trap

Repaying $40,000 on December 30 and withdrawing $40,000 on January 2 is not a repayment, CRA says. Repayments that are part of a series of loans and repayments are ignored. What counts as a real repayment:

• Salary or bonus credited to the account, with source deductions remitted.
• A dividend declared and credited to the account, reported on a T5; see paying dividends.
• Personal funds that stay in the company.
• Business expenses you paid personally and recorded as owed to you.

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Exceptions

The one-year rule doesn't apply to a loan made in the ordinary course of a money-lending business, or to certain loans to a shareholder who is also an employee: to buy a home to live in, to buy newly issued shares of the company, or to buy a car needed for the job. These need bona fide repayment terms, and the loan must be received because of employment, not because you own the company. For an owner-manager who is the only employee, CRA generally concludes the loan came from the shareholding, so the exceptions rarely help.

Personal Expenses Through the Company

Paying personal costs through the company and booking them as business expenses is worse than a shareholder loan: CRA can tax them as a shareholder benefit with no deduction for the corporation, and deny the GST/HST input tax credits; see input tax credits. If it's personal, book it to the shareholder loan account and deal with it. Clean records help; see recordkeeping requirements.

How you pay yourself to clear the account is on salary vs dividends; the deadline that matters is your year-end, on corporate tax deadlines; the balance is reported on the T2 return. If CRA has already reassessed a shareholder loan, see notice of reassessment. The overview is on Canadian corporate tax explained.

Shareholder Loan Questions

Sources: CRA, Income Tax Folio S3-F1-C1, Shareholder Loans and Debts; Folio S3-F1-C2, Deemed Interest Benefit; Loans received because of shareholdings; Prescribed interest rates, Q4 2026. Checked October 2026. The folios were too long for our tools to read in full, so the summary of the exceptions and the repayment deduction reflects the Income Tax Act (subsections 15(2) to 15(2.6), paragraph 20(1)(j)) as we understand it. Tax figures come from our 2026 Ontario rules engine. The prescribed rate changes quarterly.

Last reviewed October 5, 2026 against CRA and Government of Canada sources. How we check our facts.