What Is a Shareholder Loan Account, and Why Does It Matter?
Short answer: A shareholder loan account tracks the money that moves between you and your corporation. If the company owes you, it is a debt the company pays back. If you owe the company, the CRA generally taxes that shareholder loan as your income, unless you repay it within one year after the end of the company's tax year.
A shareholder loan account is a balance sheet account, often called "due to shareholder" or "due from shareholder", that records every amount between an owner and their corporation that is not salary, a dividend or a normal business expense. It only exists in incorporated businesses. A sole proprietor takes an owner's draw instead.
What is a shareholder loan account?
It is the running balance between you and your company. The same account can swing either way during the year.
Due to shareholder (a liability): the company owes you. This usually comes from money you put into the business or business costs you paid with a personal card.
Due from shareholder (an asset): you owe the company. This usually comes from money you took out or personal costs the company paid for you.
The CRA's General Index of Financial Information (GIFI), used for the corporation's tax return, has separate lines for amounts due from shareholders and amounts due to shareholders. Your accountant reports the year-end balance on one of them. You will also see it on your balance sheet every month.
What ends up in the shareholder loan account?
Anything that moves between you and the company that is not payroll, a declared dividend or a business expense. The CRA lists the usual entries in a loan or drawings account:
Money you take out of the business bank account for personal use.
Personal bills the company pays for you, such as a personal credit card, a family trip or groceries.
Advances against a future salary, rent or dividend.
Money you put in, and business expenses you pay personally (these go the other way and reduce what you owe).
If the company pays a personal expense and there is no agreement that you will pay it back, the CRA may treat it as a taxable shareholder benefit instead of a loan. The CRA also looks at what actually happened, not at how the entry was labelled in the books.
Is a shareholder loan taxable in Canada?
It can be. Under the Income Tax Act, a loan from a corporation to its shareholder is generally added to the shareholder's income for the year the loan was made. The main way out is the one-year rule: the loan is not taxed if it is repaid within one year after the end of the company's tax year in which it was made, and the repayment is not part of a series of loans and repayments.
Company year-end | Loan taken | Company tax year of the loan ends | Repay by |
December 31 | March 15, 2026 | December 31, 2026 | December 31, 2027 |
June 30 | August 10, 2026 | June 30, 2027 | June 30, 2028 |
The rule looks at each year's loans separately. Repayments are applied to the oldest loan first unless the facts clearly show otherwise.
The rule also covers loans to people connected with a shareholder, such as a family member who does not deal at arm's length with you. There are narrow exceptions for some loans made because of employment, for example to buy a home or a car used for work. Whether one applies is a question for your accountant.
What happens if I don't repay my shareholder loan in time?
The full unpaid amount is added to your income for the year you received the loan. If your personal return for that year is already filed, it has to be amended, and the CRA charges interest on the extra tax.
When you do repay the loan later, you can generally deduct the repayment in the year you repay it.
A quick repayment just before year-end does not work if the money comes straight back out. The CRA's own example: an owner repays a $30,000 shareholder loan on December 28 with a short-term bank loan, then borrows $30,000 from the company again on January 6 to pay off the bank. The CRA would generally treat that as a series of loans and repayments, so the one-year rule does not apply and the $30,000 is taxed in the year of the original loan.
Can I repay a shareholder loan with a dividend or bonus?
Yes. The CRA accepts a repayment made by applying a dividend, salary or bonus owed to you against the loan balance. It does not treat this as part of a series of loans and repayments, even if you borrow again afterwards.
The dividend or bonus is still taxable to you, and it needs the right slip: a T4 for a salary or bonus, a T5 for a dividend. How each one works is covered in our post on salary or dividends. Which one to use is a decision for you and your accountant before year-end.
Do I have to pay interest on a shareholder loan?
Not by law, but a low-interest or interest-free shareholder loan creates a taxable benefit. The benefit is the interest at the CRA's prescribed rate, minus any interest you pay in the year or within 30 days after it. The company reports the benefit on a T4A slip.
As of 2026, the prescribed rate for these loans is 3% for every quarter of the year, including October to December. Example: a $20,000 interest-free loan outstanding for all of 2026 gives a benefit of $600 ($20,000 x 3%). Pay $600 of interest to the company by January 30, 2027, and there is no benefit.
This interest benefit does not apply to a loan that has already been added to your income under the rules above. The rate is set every quarter, so check the CRA's prescribed rates page before you calculate.
How do I keep the shareholder loan account clean every month?
Good bookkeeping practice is simple: record every movement when it happens and check the balance every month, not once a year.
Add a note to every transfer. Each transfer between you and the company gets a one-line reason, such as "owner paid for supplies" or "personal Visa, paid by company".
Code personal spending to the shareholder loan, not to a business expense account. A personal purchase coded as an expense overstates your costs and understates what you owe.
Record business costs you paid personally with the receipt, so the company owes you the right amount.
Review the balance monthly. If you owe the company, know which year each amount came from and when its repayment deadline is.
Talk to your accountant before year-end about how any balance you owe will be cleared: a repayment, a dividend or a bonus.
A clean account also makes year-end faster. It is one of the items on our year-end checklist.
This is part of the monthly bookkeeping we do for small businesses across Canada. Our prices are published, and you build your plan from only the services you need. See our pricing.
Frequently asked questions
Is a shareholder loan the same as an owner's draw?
Not quite. "Owner's draw" is the term for taking money out of an unincorporated business. A corporation is a separate legal person, so when an incorporated owner takes a draw, it is recorded in the shareholder loan account unless it is paid as salary or a dividend.
Does a shareholder loan need a written agreement?
The CRA says a written agreement is preferable but not required. Other convincing evidence, such as a corporate resolution reflected in the financial statements, can show that a loan exists. Without it, the payment may be taxed as a shareholder benefit instead.
Can the company just forgive my shareholder loan?
It can, but the forgiven amount can be added to your income as a shareholder benefit. Forgiving the loan does not make it tax-free.
Does the one-year rule apply to a loan to my spouse or child?
Generally yes. The rule applies to people connected with a shareholder, which includes family members who do not deal at arm's length with you.
Sources
Income Tax Folio S3-F1-C1, Shareholder Loans and Debts - Canada Revenue Agency
Income Tax Folio S3-F1-C2, Deemed Interest Benefit on Shareholder Loans and Debts - Canada Revenue Agency
Prescribed interest rates, fourth calendar quarter 2026 - Canada Revenue Agency
RC4088, General Index of Financial Information (GIFI) - Canada Revenue Agency
About Remote Bookkeeping
Remote Bookkeeping is a Canadian-owned firm providing monthly bookkeeping, financial reporting, payroll, HST/GST filing, year-end preparation and QuickBooks Online setup for small businesses across Canada. Founded by Lia and George, with more than 30 years of combined experience. Call (289) 867-0808 or 1-800-880-9141, or contact us. Related reading: Should I Pay Myself a Salary or Dividends in Canada?
This article is general information for Canadian small business owners. It is not tax, legal or accounting advice for your particular situation. Rates and thresholds change - always confirm against the source linked above or ask us.
Comments