Shareholder Loans in Canada: The CRA One-Year Rule Every Business Owner Must Know

If you own a corporation, you might be tempted to take money out of the business without formally paying yourself a salary or dividend. Instead, you record it as a "shareholder loan" — money the corporation lent you. This is legitimate and common. But the CRA has strict rules about it, and violating them transforms your loan into fully taxable personal income retroactively. Here's everything you need to know.

What Is a Shareholder Loan?

A shareholder loan is money that flows between a corporation and its shareholders or employees — in either direction. It's recorded in the company's books as either:

• Due from shareholder (loan to shareholder): Money the corporation lent to the shareholder. The shareholder owes the corporation this amount.
• Due to shareholder (loan from shareholder): Money the shareholder lent to the corporation. The corporation owes the shareholder.

This guide focuses on loans to shareholders — when you as the business owner take money out of the corporation — because that's where the CRA scrutiny and tax risk lies.

The One-Year Rule (Section 15(2) of the Income Tax Act)

Under Section 15(2), if a corporation loans money to a shareholder (or a person related to a shareholder), the full amount of the loan must be included in the shareholder's personal income in the year the loan was made — unless the loan is repaid within a specific window.

The repayment window is: by the end of the corporation's first fiscal year that ends after the loan was made.

If you have a non-calendar fiscal year, the window is different. A company with a March 31 year-end that makes a loan on June 1, 2026 must repay it by March 31, 2027 (the first fiscal year-end after the loan). This can actually give you nearly 22 months in some cases.

The Series of Loans Warning

The CRA is alert to a common workaround: repaying the loan just before the deadline, then immediately taking it out again. If the CRA determines that a repayment was made as part of a "series of loans and repayments" — a pattern of borrowing, repaying near the deadline, and borrowing again — they can disallow the repayment and include the loan in income anyway.

This means you can't simply use the corporation as a personal ATM by cycling loans. The spirit of the rule is that shareholder loans should be genuine, temporary advances — not a substitute for paying yourself.

Exceptions: When Loans Can Remain Outstanding

There are specific circumstances where a shareholder loan can remain outstanding beyond one year without being included in income, provided all of the following conditions are met:

• The loan was made in the ordinary course of the corporation's business (e.g., a bank loans money to its shareholder-employees as part of normal banking operations)
• Bona fide arrangements for repayment were made at the time of the loan
• The loan bears interest at the prescribed CRA rate, and interest is paid within 30 days of year-end
• The shareholder or employee was not a "specified shareholder" (generally meaning they owned less than 10% of shares) — or the loan was for a specific eligible purpose (see below)

Specific Eligible Loan Purposes

Even for shareholders with more than 10% of shares, certain loans are excluded from income inclusion if they were made because of the employment relationship (not just the shareholder relationship) for a specific purpose:

• To purchase a home — shareholder or employee buys or improves a principal residence
• To purchase a car for business use
• To buy shares of the corporation from the treasury

For these purposes, the loan must bear interest at the CRA's prescribed rate, interest must be paid within 30 days of year-end, and the repayment terms must be documented.

The Interest Requirement

Even for loans that qualify under the exceptions above, the CRA requires interest to be charged and paid at a minimum of the prescribed rate — set quarterly by the CRA based on 90-day Treasury bill rates. If you don't charge or pay interest, the CRA imputes a taxable benefit to the shareholder equal to the interest they should have paid at the prescribed rate.

Interest charged at the prescribed rate doesn't have to be paid immediately — but it must be paid within 30 days of the corporation's fiscal year-end. Failing to pay on time results in the interest being added to your personal income as a taxable benefit.

How It Appears in the Corporation's Books

A shareholder loan balance appears on the corporation's balance sheet as either an asset (due from shareholder) or a liability (due to shareholder). If the balance sheet shows a consistent or growing debit balance (shareholder owes the corporation), that's a red flag the CRA looks for when reviewing T2 corporate returns. A large shareholder loan balance that persists year after year is a major audit trigger.

What to Do Instead of a Shareholder Loan

If you regularly need to take money out of your corporation, the cleaner alternatives are:

• Pay yourself a salary: Subject to payroll remittances (CPP, income tax), but deductible to the corporation and generates RRSP room
• Declare dividends: Taxed in your hands personally, no CPP contribution, no RRSP room generated — but simpler administratively
• Management fees: Must be reasonable and for actual services rendered