A client asked me a while back to write a blog post about shareholder loans. Not because anything had gone wrong, she had just realized no one had ever actually explained shareholder loans to her. Even though she had been running her business for years. I think that’s probably true for a lot of you, so let’s fix that.
It’s such a common problem. You built the business, the money’s sitting in your account, and it can feel like yours to move around freely because, it feels like it’s yours. But…your corporation is its own legal entity, separate from you. And that separation is exactly what makes shareholder loans one of the more misunderstood parts of running an incorporated business.
In short: what you take out, and when you pay it back, matters more than most people realize — and the CRA track it more closely than you’d think.
What a Shareholder Loan Account Actually Is
A shareholder loan account is a running ledger we keep in your books that tracks every dollar crossing the line between you personally and your corporation — outside of your regular salary, dividends, or expense claims. Think of it as a tally that goes up or down with every transaction that mixes business with personal.
Quick note before we go further: this only applies if you’re incorporated. If you’re a sole proprietor, there’s no shareholder loan account. You’re using owner’s draws and owner’s equity instead, which work quite differently. That’s a topic for another post (wink, wink — next month).
It’s not one single transaction. It’s a balance that moves throughout the year, and where it lands at year-end tells us, and the CRA, who owes who.
I’ll be honest: years ago, I had a client who used their corporate credit card for a family trip and told me they would sort it out at tax time. We sorted it out at tax time, with their accountant. But it turned into a real lesson for them in just how important it is to repay these loans on time. It ended up costing them in both taxes and accountant fees. An expensive lesson, and one I’d rather help you avoid.
How the Account Fills Up
This account gets touched more often than people realize, cash and personal cards get mixed into business spending almost by habit. It usually shows up in two directions:
Business expenses paid personally. You grab gas for the company van on your personal card, or you buy salon supplies from Amazon with your personal credit card because you mistook it for the business card. That’s a legitimate business expense, you just fronted the cash. We record it as you lending the corporation that amount, which reduces what you owe the corporation (or adds to what it owes you).
Personal expenses paid from the business. This one’s more common than anyone wants to admit, a personal grocery run on the business debit card, or the corporation covering your kids’ summer camp. That’s the corporation lending money to you, and it increases the amount you owe back.
Personal-use portions of business expenses. Things like your vehicle, home office, or cell phone are rarely 100% business use, there’s almost always a personal portion in there too. When we calculate that personal portion at year-end, it gets charged back to you through the shareholder loan account, since the corporation covered the full cost but only the business portion was actually a deductible expense. This one tends to work in one direction, it generally increases what you owe.
Over the course of a year, these little transactions add up, and the shareholder loan account nets them out into a single running balance that you can see on your balance sheet. Sound familiar? This is something you should be keeping an eye on when you read your reports each month.
Why the Direction of the Balance Matters
If, by year-end, the net balance shows the corporation owes you, because you’ve fronted more than you’ve drawn, that’s simply your money, and you can pay it back anytime, tax-free.
But if the balance flips the other way, and you owe the corporation, that’s where the CRA pays attention. You generally need to repay that amount within one year after the end of the corporation’s fiscal year in which the balance arose. Don’t repay on time? The outstanding amount gets added to your personal income for the year you first owed it, taxed as income.
For a plumber with a June 30th year-end, for example, a balance you owed as of August 2025 would need to be cleared by June 30, 2027 to avoid that outcome. It sounds like a long time, but I’ve had more than one client hit month eleven of that window and start panicking because they don’t have the funds to pay it back.
There’s also a smaller cost, even when you do repay on time: if the amount you owed didn’t carry interest at or above the CRA’s prescribed rate, you may be considered to have received a taxable benefit on the interest you didn’t pay. It’s usually a smaller number, but it’s not nothing.
Repayment Isn’t the Only Option
Repaying the balance doesn’t always mean writing a cheque back to the corporation. One of the more common ways our clients’ accountants resolve a shareholder loan balance is by declaring a dividend equal to the amount owed, and applying it directly against the loan instead of paying it out in cash.
On paper, that satisfies the repayment requirement, the loan is considered settled. But it’s not a free pass: a dividend is still taxable income to you personally, just taxed differently. Whether that’s the better route depends on your personal tax picture that year, which is really a conversation for your accountant. But it’s good to know the option exists, so a growing balance doesn’t make you feel stuck.
Why This Isn’t the Same as Just “Drawing” Money
I think the confusion often comes from how sole proprietors operate, where there’s no legal line between you and the business, and money moves freely. Most businesses start as sole proprietors and then eventually incorporate, so I understand why it’s hard to wrap your brain around. Once you incorporate, that line exists whether you feel it or not. Every dollar being paid out of the corporation to you needs a reason: salary, dividend, expense reimbursement, or a shareholder loan that gets tracked and settled.
None of this means you can’t ever mix personal and business spending informally. It happens, and it can be manageable. It just needs to be tracked properly so we can keep that running balance accurate and repaid on a time.
The Practical Takeaway
I know, another “talk to me before it becomes a problem” lecture. But this one can actually cost, or save you a lot of money. The best thing you can do is keep your receipts and always upload them to Dext right away, especially when a purchase crosses the personal-business line. That’s what lets us keep your shareholder loan account accurate month to month. If your account is showing a balance you owe the corporation, let’s talk about it sooner rather than later, we can plan the cleanest way to clear it before the deadline creeps up.
Until next time — and if you’re not sure whether something counts as a shareholder loan, just ask. That’s what we’re here for.
— Katrina
This post is for informational purposes only and does not constitute accounting or legal advice.
