Shareholder Loan (Tax Rules)

A shareholder loan account records money that moves between an owner-manager and the corporation outside salary and dividends. It runs in two directions:

• Credit balance (the corporation owes you). You lent the company money, paid its expenses personally or left declared amounts in it. Withdrawing that balance is a repayment of debt and is not taxable.
• Debit balance (you owe the corporation). You took out more than the company owed you. This is the direction the Income Tax Act targets, because otherwise owners could live on corporate cash without paying personal tax.

This entry covers the tax rules. Authorizing and recording draws is covered in our guide on how to pay yourself from your corporation, and documenting loans between related companies is covered in intercompany loans in Canada.

Subsection 15(2) reaches beyond the shareholder personally. It covers loans to a shareholder, to a person connected with a shareholder (someone who does not deal at arm's length with, or is affiliated with, the shareholder, such as a spouse), and loans made by a corporation related to the one in which the shares are held. It does not apply where the borrower is a corporation resident in Canada, so a loan from an operating company to its Canadian holding company falls outside it.

If subsection 15(2) applies, the full amount of the loan is included in the borrower's income for the year the loan was received. It is taxed as ordinary income, not as a dividend, so no dividend gross-up or credit applies, and the corporation gets no deduction. The same corporate profit can therefore be taxed twice at close to full rates.

The main exception is in subsection 15(2.6): there is no inclusion if the loan is repaid within one year after the end of the corporation's taxation year in which it was made, and the repayment is not part of a series of loans and repayments. For a corporation with a December 31 year-end, every 2026 advance, whether taken in January or December, must be repaid by December 31, 2027. Miss the deadline and the CRA can reassess the borrower's 2026 return, with interest.

The CRA's Income Tax Folio S3-F1-C1 sets out how it applies the rule:

• Series of loans. Repaying the balance just before year-end and re-borrowing it early in the next year is generally a series, so the repayment does not count.
• Salary, bonus or dividend set-off. Crediting a declared salary, bonus or dividend against the balance is an accepted repayment and is not part of a series, even if borrowing continues. The salary or dividend is taxed in the normal way.
• First in, first out. Repayments apply to the oldest outstanding loan first unless the facts clearly show otherwise.
• Late repayment. If an amount was included under 15(2) and is repaid later, the borrower deducts the repayment in the year it is made, provided it is not part of a series.

The other exceptions are narrow. Ordinary trade debts, and loans made in the ordinary course of a money-lending business, are excluded if bona fide repayment terms are set. Employee loans are excluded only where the loan was made because of employment rather than shareholding, with bona fide repayment arrangements. An employee who is a significant shareholder (generally 10% or more of a class) or who does not deal at arm's length with the corporation qualifies only for a loan to buy a home, newly issued shares of the corporation or a vehicle needed for work. The CRA sees loans offered only to shareholders, on better terms or without security for a large amount as pointing to shareholding.

A loan that escapes 15(2), because it is repaid in time or fits an exception, can still produce a taxable benefit if it carries little or no interest. Under subsection 80.4(2), a shareholder who receives a loan because of shareholding is deemed to receive a benefit equal to interest at the CRA prescribed rate on the outstanding balance, minus interest actually paid for the year no later than 30 days after year-end.

The prescribed rate is set quarterly from 90-day Government of Canada Treasury bill yields. For October 1 to December 31, 2026, the rate for taxable benefits on shareholder and employee loans is 3%. A loan already included in income under 15(2) is excluded, so the same loan is not taxed both ways. Where the borrowed money is used to earn business or investment income, the deemed interest can generally be deducted as interest under section 80.5. The CRA explains the calculation in Folio S3-F1-C2.

Not every withdrawal is a loan. If the corporation pays an owner's personal expenses, transfers property to the owner for less than its value or lets the owner use corporate property personally, without a genuine obligation to repay, the value is a shareholder benefit under subsection 15(1). The CRA's folio says that without a written agreement or convincing evidence that a debt exists, 15(2) will not apply and 15(1) may apply instead. A benefit is taxed in the year it is conferred, with no one-year window, and the corporation cannot deduct the personal expense. Our entry on personal vs. business expenses explains where the CRA draws that line.

Forgiving a shareholder's debt is also a benefit: subsection 15(1.2) treats the forgiven amount as a benefit conferred on the shareholder. Writing off a debit balance does not make it disappear for tax purposes; it turns it into income.

Section 15 amounts received by family members can also be caught by the tax on split income, which taxes them at the top rate unless an exclusion applies.

The loan account becomes a deal term when shares are sold, a shareholder leaves or the company winds up.

In a share sale the corporation keeps its receivables, including any amount the seller owes it, so due diligence reviews the account closely and the purchase agreement usually requires it to be cleared at closing. Repaying a debit balance at closing avoids 15(2) only for advances still inside their one-year window; older balances were already taxable, and repaying them gives a deduction instead. A credit balance that is not paid in cash is often converted into a promissory note. In an asset sale, the corporation receives the proceeds and can repay a credit balance to its owner tax-free before distributing the rest.

Ravi Sharma is the sole shareholder of Lakeshore Millwork Inc., an Oakville cabinet maker with a December 31 year-end. On October 1, 2026 he withdraws $80,000 toward the down payment on a new house, recorded as a debit to his shareholder loan account with no interest.

Because the advance was made in the corporation's 2026 tax year, Ravi has until December 31, 2027 to repay it. The employee home-purchase exception does not help: he is the only shareholder and the company makes no similar loans to employees who are not shareholders, so the CRA would treat the loan as made because of his shares.

For 2026, the interest-free loan creates a deemed interest benefit of about $605 ($80,000 × 3% × 92 days ÷ 365) unless Ravi pays that much interest by January 30, 2027, and a further benefit arises for 2027 while the balance is outstanding. In March 2027 the board declares a $50,000 dividend that is credited against the loan, and Ravi repays the remaining $30,000 from personal savings in November 2027. The loan never enters his income under 15(2); he pays tax on the dividend and on the interest benefits. Had he repaid nothing by December 31, 2027, the CRA could have added the full $80,000 to his 2026 income, taxed at full rates with no dividend credit.