Shareholder Loan Rules in Canada: The One-Year Deadline

Taking money out of your corporation without setting up payroll or declaring a dividend feels simple in the moment — it's your business, your money. CRA doesn't see it quite that simply, and there's a real deadline attached to it that a lot of owners find out about the hard way.

What's Actually Happening

When a corporation advances money to a shareholder, CRA treats it as a shareholder loan, and the general rule requires the loan to be included in your personal income for the year it was made, unless a specific exception applies. There are several statutory exceptions, and the one that comes up most often for owner-managers is repayment within the required period — provided the repayment isn't part of what CRA calls a series of loans or other transactions and repayments.

That's the exception worth understanding in detail, because "one-year deadline" doesn't mean what most people assume it means.

How the Shareholder Loan Repayment Deadline Works

The repayment window is one year after the end of the corporation's taxation year in which the loan was made — not one year from the date you borrowed the money. That distinction changes how much real time you have depending on when in the fiscal year the loan happened.

Example: A corporation with a December 31 year-end advances $20,000 to a shareholder on January 15, 2026. The loan was made in the corporation's 2026 taxation year, which ends December 31, 2026 — so the repayment deadline is December 31, 2027. That's almost 23½ months after the money was borrowed.

If the same $20,000 is advanced on December 15, 2026 instead, the deadline is still December 31, 2027 — but now there's only about 12½ months to repay it.

Same taxation year. Same repayment deadline. Very different amount of time to deal with it.

Owners who don't think about timing tend to take year-end draws with almost no recovery window built in.

The Interest Benefit Rule

There's a separate rule that can apply while a shareholder loan remains outstanding and hasn't already been included in your income under the rule above. If the loan is interest-free or charged below CRA's prescribed rate, CRA can treat the interest you effectively saved as a taxable interest benefit — an amount added to your personal income for tax purposes — for as long as the loan is outstanding.

The prescribed rate is set quarterly and changes — it's 3% for the final quarter of 2026, but confirm the current rate before assuming a number, since it moves. To reduce or eliminate this benefit, interest generally needs to be actually paid — not just calculated on paper — during the year or within 30 days after the end of the shareholder's tax year, which for an individual is normally December 31.

Keeping the Loan Account Clean

If your corporation regularly advances money to you between salary and dividend payments, a few habits keep the shareholder loan balance from becoming a problem:

Track it properly. A shareholder loan account, sometimes shown on the balance sheet as "due from shareholder," should show what was advanced, when, and what's been repaid — not just a running number that never gets explained. A growing shareholder loan balance can be a sign that draws are being taken without an actual compensation plan behind them. Review the account regularly during the year — and definitely before year-end — so it doesn't become a surprise when the accountant sees it.

Know your deadline before you need it. Mark the actual repayment deadline based on when the advance happened and your corporation's year-end, not a rough guess. Put it on a calendar the moment the loan is made.

Repayment has to be genuine, but it doesn't have to be cash. A properly declared dividend, salary, or bonus can be applied against the shareholder loan balance, and CRA specifically recognizes repayments made this way. Be careful with simply repaying a loan and then borrowing the same or a similar amount again, though — depending on the circumstances, CRA can treat that as part of a "series of loans or other transactions and repayments," which can prevent the repayment exception from applying. If you're clearing the loan through salary, a bonus, or a dividend, it still needs to be properly structured, documented, and reported — not just journaled away.

Exceptions Worth Knowing

There are specific exceptions for certain loans, including some made to shareholder-employees for particular purposes like a home purchase, buying shares in the corporation, or a vehicle needed for employment. The conditions matter, though — simply using borrowed corporate money to buy a house doesn't automatically make the loan exempt. Don't rely on one of these exceptions without confirming with your accountant that you actually meet its requirements.

If You've Missed the Deadline

If the repayment window closes without a qualifying repayment, the loan may have to be included in your personal income for the year it was originally made — meaning an amount you originally treated as borrowed money can become taxable income to you, even if you repay it shortly after the deadline passes. Forgiving the loan instead of repaying it doesn't fix this either; writing it off generally creates its own taxable benefit.

It isn't necessarily a permanent double hit, though. If the loan is later genuinely repaid, a deduction can generally become available in the year of that repayment. That doesn't erase the original problem — the income inclusion and the deduction can land in different tax years, with real cash-flow and tax consequences in between — but it's not simply gone money on top of a tax bill with no offset ever.

If you're not sure whether an existing balance is still inside its repayment window, or whether a "loan" was ever properly documented as one, bring it to your accountant before the deadline arrives, not after.

FAQ

How do I know when my shareholder loan is actually due?
It's one year after the end of your corporation's taxation year in which the loan was made — not one year from the date you took the money. Confirm your corporation's year-end and count from there.

Can salary, a bonus, or a dividend be used to clear a shareholder loan?
Potentially, yes. Amounts properly payable to you can be applied against the loan balance, and CRA specifically recognizes repayments made this way. But the salary, bonus, or dividend still has its own tax, payroll, and corporate documentation requirements — have it structured and recorded properly rather than just posting a journal entry to make the balance disappear.

What if I repay the loan and then need to borrow again a few months later?
This is where things get risky. Depending on the circumstances, CRA's rule for a "series of loans or other transactions and repayments" can prevent the repayment exception from applying. There's no simple waiting period that automatically makes a new loan safe. If you're repeatedly repaying and re-borrowing from the corporation, have your accountant look at the pattern before relying on the one-year repayment exception.

Does this apply even if I'm the only shareholder and it's a small amount?
Yes. The rule doesn't have a size exception — it applies based on the nature of the transaction, not how big the corporation is or how many shareholders it has.

Follow the system. File with confidence.