CRA rules, the one-year repayment deadline, when a loan becomes taxable income, and how to avoid the most expensive tax traps
A shareholder loan is money borrowed from your own corporation. It is one of the most commonly misunderstood areas of Canadian corporate tax — and one of the most expensive to get wrong. Many small business owners use shareholder loans without understanding the strict CRA rules that govern them.
A shareholder loan occurs when a corporation lends money to its shareholder, or when a shareholder withdraws money from the corporation and records it as a loan (rather than salary or dividends). It also covers the reverse: money you lend to your own corporation.
Examples of shareholder loans:
Under Section 15(2) of the Income Tax Act, if you (as a shareholder) borrow money from your corporation, you must repay the entire loan within one year of the corporation's fiscal year-end in which the loan was made.
If you do not repay within the one-year window, the entire loan amount is included in your personal income for the year the loan was made — taxed at your full marginal rate. This can create a massive unexpected tax bill.
Your corporation has a December 31 fiscal year-end. You borrow $40,000 from the company on March 15, 2025. The loan must be repaid by December 31, 2026 (one year after the fiscal year-end in which the loan occurred — December 31, 2025). If you repay by that date, no income inclusion. If you do not, CRA adds $40,000 to your personal T1 income for 2025.
CRA provides exceptions where shareholder loans are not immediately included in income even if not repaid within one year:
For these exceptions to apply, the loan must be made because of your employment (not just shareholding), and bona fide repayment arrangements must be in place. These situations require proper documentation — talk to your accountant before relying on an exception.
If you have a legitimate shareholder loan (under the exceptions above or properly structured), CRA requires the corporation to charge you interest at the CRA prescribed interest rate. For 2026, this rate is set quarterly by CRA based on the 90-day T-bill rate.
If the corporation does not charge you at least the prescribed interest rate, CRA calculates a deemed interest benefit and adds it to your personal income — even if you never paid or received any interest.
CRA prescribed rate for Q1 2026: 5%. Check CRA's website for the current quarter's rate before structuring any shareholder loan.
You cannot repay a shareholder loan and then immediately re-borrow the same amount to restart the clock. CRA specifically watches for this — called a "series of loans and repayments." If you repay right before year-end and re-borrow right after, CRA can treat the original loan as never repaid and include it in your income.
A genuine repayment means the money stays in the corporation for a reasonable period before any new borrowing occurs.
The shareholder loan rules above apply to loans the corporation makes to you. The reverse — loans you make to your corporation — are treated differently:
A loan from the corporation to you appears as:
A loan from you to the corporation appears as:
Your accountant tracks the running balance of your shareholder loan account. A positive balance means you owe the company; a negative balance means the company owes you.
If you have an outstanding shareholder loan balance that has not been repaid within the one-year window, options to resolve it include:
Track your shareholder loan balance monthly, not just at year-end. By the time your accountant flags a problem, it may be too late to avoid the income inclusion. Use bookkeeping software that shows the running balance clearly.
A Smart Canada Tax advisor can review your shareholder loan situation and recommend the best approach before your fiscal year-end.
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