Under the shareholder loan rules in Canada, money you borrow from your own corporation generally has to be repaid within one year after the end of the corporation’s tax year in which you borrowed it. If it isn’t, the full amount is added to your personal income for the year you received it, and unlike a salary, the corporation can’t deduct it.
If your corporation has a December 31 year-end, anything you borrowed from it during 2025 has to be repaid by December 31, 2026. This guide explains how the shareholder loan account works, the one-year rule, the interest benefit on loans you do repay, the ways to clear a balance and the traps that catch Ottawa business owners at year-end.
Table of Contents
- What counts as a shareholder loan
- The one-year repayment rule
- The interest benefit on loans you repay on time
- How to clear a shareholder loan balance
- Common traps, including the series rule
- Exceptions and special cases
- How BBA Tax helps incorporated business owners
- Frequently Asked Questions
Key Takeaways
- Money you take from your corporation that isn’t salary, a dividend or a repayment of business expenses is usually a shareholder loan.
- A loan must generally be repaid within one year after the end of the corporation’s tax year in which it was made, or it is included in your income for the year you received it.
- Repaying just before the deadline and borrowing the money again soon after can be treated as a series of loans and repayments, and then the repayment doesn’t count.
- A loan you repay on time can still create a taxable interest benefit unless you pay interest at the prescribed rate (3% for October to December 2026) within 30 days after the year ends.
- You can clear a balance with cash, a salary or bonus, or a dividend. Each has a different tax cost and deadline.
What counts as a shareholder loan
A shareholder loan is money that moves between you and your corporation that isn’t salary, a dividend or a repayment of business expenses you paid personally. It is tracked in the shareholder loan account on the corporation’s balance sheet, and that account can run in either direction:
- A credit balance means the corporation owes you, for example because you lent it money to get started or paid business costs personally. Getting that money back is a repayment of your loan, not income.
- A debit balance means you owe the corporation. This is the side the tax rules target, because it is corporate money you are using personally without paying personal tax on it.
Debit balances often build up by accident, through a personal bill paid from the business account or a personal purchase on the company card. Our guide to separating personal and business expenses covers habits that keep the two apart.
The rules reach beyond you, too. They apply to loans to a person connected with a shareholder, such as a family member, and to members of a partnership or beneficiaries of a trust that is a shareholder. The CRA sets out its position in Income Tax Folio S3-F1-C1, Shareholder Loans and Debts.
The one-year repayment rule
You have until one year after the end of the corporation’s tax year in which you borrowed. Subsection 15(2) of the Income Tax Act generally includes a loan you receive as a shareholder in your income, and subsection 15(2.6) is the main way out: the inclusion doesn’t apply if the loan is repaid by that deadline and the repayment isn’t part of a series of loans and repayments.
The deadline follows the corporation’s year-end, not the calendar year:
| Corporation’s year-end | You borrow on | That tax year ends | Repay by |
|---|---|---|---|
| December 31 | June 15, 2025 | December 31, 2025 | December 31, 2026 |
| December 31 | March 1, 2026 | December 31, 2026 | December 31, 2027 |
| June 30 | August 1, 2026 | June 30, 2027 | June 30, 2028 |
If you miss the deadline, the loan is included in your income for the tax year in which you received it, not the year you missed the deadline. For a loan taken in 2025, that means the CRA can reassess your 2025 return, and interest runs on the extra tax.
If you later repay a loan that was already included in your income, you can deduct the repayment in the year you make it, as long as the repayment isn’t part of a series of loans and repayments. The Folio also says repayments are applied to the oldest loan first unless the facts clearly show otherwise.
The interest benefit on loans you repay on time
Repaying on time keeps the principal out of your income, but an interest-free or low-interest loan can still give you a taxable benefit. Under section 80.4, the benefit is interest at the CRA’s prescribed rate on the amount outstanding, minus any interest you actually pay in the year or within 30 days after it ends.
The prescribed rate is set every quarter. For October 1 to December 31, 2026, the rate used for taxable benefits on shareholder loans is 3%. As a simple example, if the rate stayed at 3% for a full year, a $40,000 balance would create a $1,200 benefit, less any interest you paid by January 30 of the following year.
According to Folio S3-F1-C2, the corporation must report the benefit on a T4A slip. There is no benefit on a loan that is included in your income under the one-year rule, or on a loan that carries an arm’s length commercial interest rate. Paying interest only deals with the benefit: it doesn’t extend the one-year repayment deadline.
Carrying a shareholder loan balance into year-end? BBA Tax can review the account, confirm your repayment deadline and help you compare the options for clearing it. Book a free intro call.
How to clear a shareholder loan balance
You can clear a debit balance by repaying it, by having the corporation pay you a salary or bonus, or by declaring a dividend, and you can keep a documented loan in place in the meantime. The right choice depends on your personal tax rate, the corporation’s income and your cash flow.
| Method | How it works | Tax result | Timing to watch |
|---|---|---|---|
| Repay in cash | You pay the corporation back from personal funds | No income inclusion, as long as the repayment isn’t part of a series | Before the one-year deadline |
| Salary or bonus | The corporation pays you and applies the net amount to the loan | Employment income to you, with payroll deductions; deductible to the corporation | A bonus has to be paid within 180 days after year-end to be deducted in that year |
| Dividend | The corporation declares a dividend and applies it to the loan | Taxed to you as dividend income; not deductible to the corporation | Declare and apply it before the one-year deadline |
| Keep the loan and pay interest | Interest at least at the prescribed rate | Reduces or removes the interest benefit; the one-year rule still applies | Pay interest by January 30 of the following year |
The CRA’s Folio confirms that repaying a loan by applying a dividend, salary or bonus owed to you isn’t treated as part of a series. Which of those costs less depends on how salary and dividends are taxed in your situation. Our guide to paying yourself as a small business owner and our salary vs. dividend calculator can help you compare.
Make the decision before the deadline, not at tax time. Under the 180-day rule for unpaid remuneration, a bonus that isn’t actually paid within 180 days after the corporation’s year-end is deductible only in the year it is paid.
Common traps, including the series rule
Most shareholder loan problems come from a few predictable patterns:
- Repaying and re-borrowing. If you repay a balance before the corporation’s year-end and draw the money out again soon after, the CRA can treat the repayment as part of a series of loans and repayments. The repayment then doesn’t count, and the loan can be taxed anyway.
- A balance that keeps growing. New draws every year with no plan to repay them mean a new deadline every year, and each one can be missed.
- No paper trail. Without a loan agreement, a resolution or a repayment schedule, it is harder to show what the money was and how it was repaid.
- Books that are months behind. If draws are only coded at year-end, you may find a balance after its repayment deadline has already passed.
If your books are behind, start there. Our guide to catch-up bookkeeping walks through bringing records up to date. If a loan from an earlier year was never dealt with and should have been reported, the CRA’s Voluntary Disclosures Program may be a way to correct it with relief from penalties and part of the interest.
Exceptions and special cases
A few situations fall outside the one-year rule, but each has conditions:
- Loans to Canadian corporations. The rule doesn’t apply when the borrower is a corporation resident in Canada, or a partnership whose members are all Canadian-resident corporations.
- Lending businesses. Loans made in the ordinary course of a business of lending money are excluded, if genuine arrangements are made to repay them within a reasonable time.
- Certain employee loans. A loan to an employee to buy a home to live in, newly issued shares of the corporation or a vehicle needed for work can be excluded. It has to be reasonable to conclude the loan was made because of the employment, not because of anyone’s shareholding, and there must be genuine arrangements to repay it within a reasonable time.
The employee exception turns on the facts. For an owner-manager, showing that a loan came from your job rather than your shares can be hard, so get advice before relying on it.
How BBA Tax helps incorporated business owners
BBA Tax works with incorporated business owners in Ottawa, in person, and across Canada, remotely. We keep the shareholder loan account current through monthly bookkeeping, prepare your corporate tax return alongside your personal return, and plan how and when to clear a balance before its deadline.
Because we see both the corporation’s books and your T1, we can flag a balance early and weigh repayment, salary or dividends as part of wider tax planning for business owners. In our quote calculator, corporate T2 returns start from $1,000 and bookkeeping from $1,225 a year.
Want your shareholder loan sorted before year-end? See your starting price with our 5-minute instant online quote.
Conclusion
The shareholder loan rules give you a clear window: repay within one year after the end of the corporation’s tax year in which you borrowed, without re-borrowing as part of a series, or the loan becomes personal income for the year you received it. Loans you repay on time can still create an interest benefit at the prescribed rate. Keep the account current, check the deadline for each year’s draws, and decide how you will clear the balance before the deadline arrives.
Frequently Asked Questions
When does a shareholder loan have to be repaid?
Within one year after the end of the corporation’s tax year in which you received the loan. With a December 31 year-end, a loan taken at any point in 2026 must be repaid by December 31, 2027. The repayment also must not be part of a series of loans and repayments, such as repaying before year-end and borrowing the money again soon after.
What happens if I miss the repayment deadline?
The loan is included in your income for the tax year you received it, and the CRA can reassess that year, with interest on the extra tax. If you repay the loan later, you can deduct the repayment in the year you make it, as long as the repayment isn’t part of a series of loans and repayments.
Is a shareholder loan taxable if I repay it on time?
The principal isn’t, but an interest-free or low-interest loan can create a taxable interest benefit at the CRA’s prescribed rate. The rate for taxable benefits is 3% for October to December 2026. Interest you actually pay in the year, or within 30 days after it ends, reduces the benefit, and the corporation reports it on a T4A slip.
Can I repay a shareholder loan with a bonus or dividend?
Yes. The CRA’s Folio says repayments made by applying a dividend, salary or bonus owed to you are not considered part of a series. A bonus is employment income with payroll deductions, and the corporation can deduct it if it is paid within 180 days after year-end. A dividend is taxed as dividend income and isn’t deductible to the corporation.
Do the rules apply if my spouse borrows from my corporation?
Generally, yes. Subsection 15(2) applies to loans to a shareholder and to a person connected with a shareholder, which includes family members who don’t deal at arm’s length with you. The same one-year repayment rule and series rule apply to their loans, so track them in the books too.
Does charging interest on the loan avoid the one-year rule?
No. Charging interest at the prescribed rate, or at a commercial rate, deals with the interest benefit under section 80.4. It doesn’t change the one-year repayment rule in subsection 15(2.6). To keep the principal out of your income, you still need a genuine repayment by the deadline that isn’t part of a series of loans and repayments.
