A shareholder loan sounds innocuous. You need money, your corporation has money, you borrow it. Simple.<\/p>\n
The CRA has a different view. Under section 15(2) of the Income Tax Act, a loan from your corporation to you (a shareholder) is included in your personal income for the year the loan was made. All of it. Unless specific conditions are met.<\/p>\n
Most business owners learn this rule the hard way, or not at all until they’re sitting across from their accountant facing an unexpected tax bill.<\/p>\n
The general rule is straightforward: if your corporation lends you money and the loan isn’t repaid within one year after the end of the corporation’s tax year in which it was made, the full amount is added to your personal income.<\/p>\n
Note: it’s one year after the tax year-end, not one year after you took the loan. If your corporation has a December 31 year-end and you borrowed $50,000 in February 2025, you have until December 31, 2026 (almost two years from the borrowing date) to repay it without triggering income inclusion.<\/p>\n
But there are real traps in the timing. If you repay the loan, then borrow again before your personal tax return is filed, CRA can treat it as one continuous loan, especially if the pattern repeats. The anti-avoidance rule in section 15(2.6) is specifically designed to catch repay-and-reborrow arrangements.<\/p>\n
There are circumstances where a shareholder loan doesn’t trigger immediate income inclusion, regardless of how long it’s outstanding.<\/p>\n
Home purchase loans.<\/strong> If you borrow from your corporation to buy or build a home; and you’re also an employee of the corporation, not just a shareholder, the loan can remain outstanding as long as it carries a prescribed rate of interest. As of 2026, CRA’s prescribed interest rate has been in the 5\u20136% range (it changes quarterly based on Government of Canada 90-day T-bill yields). You have to actually pay the interest, charged and paid within 30 days of the calendar year-end; or the benefit is imputed.<\/p>\n Share purchase loans.<\/strong> Loans used to purchase shares of your own corporation fall under a similar exception. The same interest rules apply.<\/p>\n Vehicle loans for employment use.<\/strong> If you’re borrowing to buy a vehicle you genuinely use for employment purposes, the exception can apply here too.<\/p>\n In all three cases, the loan must be made in the ordinary course of business, with repayment terms that a reasonable person would set with an arm’s-length lender. Documentation matters. A handshake and a bank transfer don’t constitute a bona fide loan agreement.<\/p>\n Even when a shareholder loan is structured correctly and falls within an exception, there’s still an interest benefit to contend with.<\/p>\n If you’re not paying at least the CRA prescribed rate, the difference between what you’re paying and the prescribed rate is treated as a taxable benefit under section 80.4. It gets added to your personal income, and it also gets added to the adjusted cost base of any asset you bought with the money, which affects capital gains calculations when you sell.<\/p>\n For example: if the prescribed rate is 6% and you have a $200,000 shareholder loan outstanding for a full year with no interest charged, you have a $12,000 taxable benefit. That’s real money on top of whatever other income you’re earning.<\/p>\n The most common way shareholder loans accumulate; and the way most business owners don’t notice until it’s too late, is through personal expenses charged to the corporation.<\/p>\n Groceries on the business credit card. A family vacation partially claimed as a business trip. Home renovation invoices billed to the company. Each transaction that runs through the corporation for personal benefit without being repaid or included as compensation creates a credit in the shareholder loan account.<\/p>\n If the loan account balance is positive (meaning the shareholder owes the corporation), that balance is subject to the income inclusion and interest benefit rules described above.<\/p>\n If the loan account is negative, meaning the corporation owes the shareholder, usually because the shareholder has advanced money to the business, there’s no income tax issue. But it’s still worth tracking carefully for estate and creditor protection reasons.<\/p>\n A reassessment of a shareholder loan is painful. CRA adds the loan amount to your income for the year it was made, which may push you into a higher bracket and generate interest on the additional taxes owed, going back several years if the loan went undetected.<\/p>\n The one saving grace: if you’re reassessed and the amount is included in your income, you get a deduction in the year you actually repay the loan. The double-taxation problem is avoided; but the timing mismatch, and the interest, can still sting.<\/p>\n A few practical habits prevent most shareholder loan problems:<\/p>\n Reconcile the shareholder loan account quarterly, not just at year-end. Know the balance at all times. If personal expenses are being charged to the corporation, clear them out each month through either a declaration of dividend (if there are retained earnings) or a salary adjustment, not by letting them accumulate.<\/p>\n If you need to take a larger amount, a renovation, a down payment, a gap between corporate cash flow and personal needs, structure it formally with documented loan terms, a stated repayment schedule, and interest at or above the prescribed rate.<\/p>\n And if your year-end is approaching and the loan balance is high, don’t wait for your accountant to flag it. Repaying before year-end closes the window cleanly.<\/p>\n A shareholder loan is money borrowed from your own corporation. Under the Income Tax Act, if the loan isn’t repaid within one year after the end of the corporate tax year in which it was made, the full amount is included in your personal income for that year. Exceptions exist for home purchase loans, share purchase loans, and vehicle loans, provided the loan carries interest at CRA’s prescribed rate and meets arm’s-length documentation requirements.<\/p>\n<\/div>\n You have until one year after the end of your corporation’s tax year in which the loan was made. If your corporation has a December 31 year-end and you took the loan in March 2025, you have until December 31, 2026. However, if you repay and then re-borrow before filing your personal return, CRA may apply anti-avoidance rules and treat the loan as continuous.<\/p>\n<\/div>\n The prescribed rate changes quarterly based on Government of Canada 90-day T-bill yields. In 2025\u20132026 it has been in the 5\u20136% range. You can find the current rate on the CRA website. Interest must be paid within 30 days of the calendar year-end to avoid an imputed taxable benefit.<\/p>\n<\/div>\n Yes, this is how most shareholder loan balances accumulate unintentionally. Personal expenses run through the business credit card or corporate account that aren’t offset by salary or dividends create a debit to the shareholder loan account. If the balance becomes positive (you owe the corporation), it’s subject to the income inclusion and interest benefit rules.<\/p>\n<\/div>\nThe interest benefit problem<\/h2>\n
How personal expenses through the corporation become a shareholder loan<\/h2>\n
What happens when CRA reassesses a shareholder loan<\/h2>\n
How to keep your shareholder loan account clean<\/h2>\n
Frequently Asked Questions<\/h2>\n
What is a shareholder loan in Canada?<\/h3>\n
How long do I have to repay a shareholder loan before it becomes taxable income?<\/h3>\n
What is the CRA prescribed interest rate for shareholder loans?<\/h3>\n
Can personal expenses charged to my corporation create a shareholder loan?<\/h3>\n