If you run a Canadian corporation, there's a good chance you've used a shareholder loan account (even if you've never called it that).
A quick transfer from the business account to cover a personal expense. Topping up the company with personal cash when things were tight. Planning to “sort it out later.”
All common. And yet, this is one of the areas where even experienced founders get caught off guard, often much later, and often at a cost that feels disproportionate to the original decision.
What Is a Shareholder Loan Account, Really?
A shareholder loan account tracks money moving between you and your corporation that isn't payroll or dividends.
In practice, it usually shows up in 2 ways:
Loan to Shareholder (Due From Shareholder)
This is when you take corporate funds and use them personally, without declaring payroll or dividends.
This is the side that tends to cause trouble.
Loan from Shareholder (Due To Shareholder)
This is when you personally put money into the business - often in the early days, sometimes during cash-flow gaps, sometimes just to keep things moving.
Same account, very different implications - and that distinction is where things usually start to blur.
Why Shareholder Loans Trigger Tax Issues So Quickly
Here's the part that surprises many owners:
If you take money out personally and don't repay it within the allowed timeframe (see below), the Canada Revenue Agency (“CRA”) can treat that amount as personal income and compute additional personal tax thereon.
That means:
- It may be added to your taxable income
- It doesn't receive dividend tax treatment
- Payroll deductions weren't applied
- Interest and penalties may follow if it's caught late
What felt like a temporary cash move can become one of the least tax-efficient ways to pay yourself.
Usually, there's no dramatic moment where this becomes obvious; it just shows up later.
A Common Scenario
Let's say this happens:
- You transfer $60,000 from your corporation to your personal account
- No salary or dividend is declared
- You plan to “clean it up later”
If that balance sits too long, it doesn't just stay a loan.
It can be reclassified as personal income, meaning that $60,000 gets added on top of whatever else you already earn that year.
To put real numbers behind this:
- If you're in a mid-range personal tax bracket, that $60,000 could easily result in $18,000-$22,000 of additional personal tax.
- If you're already in a top marginal tax bracket, the tax bill on that same $60,000 could be $30,000+.
And that's assuming no penalties or interest.
At that point, the money is already spent. The flexibility is gone, and the cleanup options are rarely ideal.
A Quick (But Important) Clarification on Repayment Timing
To be clear, not every shareholder loan is a problem.
There are situations where taking money out of the corporation is fine as long as it's repaid within the acceptable timeframe.
Where people run into trouble is when:
- The repayment window is missed, or
- The loan is repaid briefly and then taken out again shortly after
That second pattern - repaying and re-borrowing - is something the CRA looks at very closely. Even if the balance technically gets “repaid,” it may still be treated as income if it's part of a repeated cycle.
This is one of those areas where the intent and timing matter just as much as the numbers.
How long is the Repayment Window?
A shareholder of a Canadian corporation must repay a shareholder loan balance by the end of the fiscal year following the fiscal year in which the loan was made to avoid having the amount included in their personal income.
For example, if you borrowed money from your corporation in June 2025 and the corporation has a December 31 year-end, you must fully repay the amount borrowed by December 31, 2026.
The Overlooked Upside: When Shareholder Loans Work For You
Now the flip side.
You personally contribute $40,000 to your company:
- Covering early expenses
- Supporting growth
- Smoothing cash flow
That balance sits as “due to shareholder.”
Here's the strategic advantage: You can often withdraw those funds later, tax-free.
No payroll deductions. No dividend tax. No additional personal income.
The reasoning behind this: since you contributed personal funds that have already been taxed in your hands at a prior period to the corporation, it only makes sense that you can withdraw the same amount back tax-free.
Tracked correctly, shareholder loans can be one of the cleanest ways to move money back to yourself.
Why This Is Usually Overlooked
Simple - it doesn't feel urgent.
- Money moves quickly
- Accounts aren't reviewed often
- The balance grows slowly
- Cash flow looks fine (until tax time)
By the time the shareholder loan account gets real attention (often during tax review) the options are narrower and more expensive than they needed to be.
Practical Tips That Can Make A Big Difference
A few habits make a disproportionate difference:
- Decide upfront how money is leaving the business - Salary, dividend, or shareholder loan repayment - each has different consequences.
- Review your shareholder loan balance regularly - It should never be a surprise at year-end.
- Use shareholder contributions strategically - Especially early on - they can become tax-free withdrawals later.
- Separate convenience from planning - Quick transfers feel harmless. Structuring them properly is what protects you.
- Separate business and personal expenses - try to create a divide between your corporation and your personal life (i.e. have the corporation pay for business expenses and pay your personal expenses with personal funds).
Quick FAQ: Shareholder Loan Accounts in Canada
What is a shareholder loan account?
A shareholder loan account tracks money moving between a corporation and its shareholder that isn't salary or dividends. This includes personal withdrawals from the company and personal funds contributed to the business.
Are shareholder loans taxable in Canada?
They can be.
If a shareholder takes money out of the corporation for personal use and does not repay it within the allowed timeframe, the Canada Revenue Agency may treat that amount as personal income, making it taxable in the shareholder's hands.
When does a shareholder loan become taxable income?
Generally, a shareholder loan becomes taxable when:
- The amount is not repaid within the permitted repayment period (see above), or
- The repayment is temporary and followed by another withdrawal shortly after (often referred to as a series of repayments)
In those cases, the CRA may view the loan as income rather than a true repayment arrangement.
Can I repay a shareholder loan later to avoid tax?
Sometimes, yes - but timing matters.
Repaying the loan within the acceptable window can avoid it being treated as income. However, repaying the loan and then taking the money back out again shortly after can still trigger tax consequences, even if the balance technically goes back to zero.
This is where many owners get caught off guard.
What happens if I lend money to my own corporation?
When you personally contribute money to your corporation, it's recorded as due to shareholder.
The benefit: You can often withdraw those funds later, tax-free, since the money was already taxed when you earned it personally.
This is one of the most overlooked planning advantages of shareholder loans.
Is a shareholder loan better than paying myself a salary or dividend?
Not inherently. It depends on context.
Shareholder loans are not a substitute for proper compensation, but they can be useful as:
- A short-term cash flow tool
- A way to recover personal funds you've invested
- Part of a broader tax and compensation strategy
Used intentionally, they add flexibility. Used casually, they create risk.
The Bigger Picture
Shareholder loan accounts aren't inherently risky.
They're a powerful planning tool when handled thoughtfully. Handled casually, however, they tend to surface at the worst possible time.
If this post made you pause, it's probably worth reviewing your shareholder loan balance now while you still have options. Sometimes that's all it takes to avoid a much harder conversation later.
