Shareholder loan
A shareholder loan is the running account between an owner and their corporation, recording money each has advanced to the other.
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Key facts
| Category | Corporate tax |
|---|---|
| Also known as | due to/from shareholder |
| Recorded in | The shareholder loan account in the corporation's books |
| Repayment window | Generally by the end of the corporation's next fiscal year |
| If not repaid | The amount is included in the shareholder's income for the year it was taken |
| Interest-free balance | A taxable benefit is computed at the prescribed rate |
| Authority | Canada Revenue Agency; Revenu Québec |
What it means in practice
Money you put into the corporation builds a credit balance you can draw back out tax-free. Money you take out that is not salary or a dividend builds a debit balance — a loan from the company to you. A debit balance not repaid by the end of the corporation's next fiscal year is included in your personal income for the year you took it, and repaying it later does not undo that inclusion. A deemed-interest benefit accrues in the meantime. Because a year-end position drives the outcome, the shareholder loan account is one of the few balances worth reviewing before year-end rather than after.
The repayment window, and how it is lost
A withdrawal is not income if it is repaid by the end of the corporation's fiscal year following the one in which it was taken. Miss that date and the amount is included in income for the year of the withdrawal — not the year the deadline passed — which usually means reopening a return that has already been assessed. A series of loans and repayments does not reset the clock. Repaying just before year end and drawing the same amount immediately afterwards is treated as a continuation of the original loan, and the CRA looks at the pattern rather than at the individual entries. A balance owed to the corporation that carries no interest produces a taxable benefit computed at the prescribed rate, whether or not the loan itself becomes income.
FAQ
What if the corporation owes me instead?
Can I just declare a dividend to clear the loan?
Need this applied to your situation?
A definition only gets you so far. Talk to a Montréal CPA about what this means for your return — in English or French.