Shareholder loan

• Withdrawing money from your company creates a debt: you must repay it
• Repayment deadline: by the end of the fiscal year (the “fiscal year”) following the one in which the withdrawal was made
• If not repaid on time: the entire amount is added to your taxable personal income all at once
• Interest calculated at the “prescribed rate” (a rate set by the government) must also be reported
• Exception: A loan on commercial terms with a genuine repayment plan may be excluded from reporting, but interest at the prescribed rate must still be reported

This is one of the most common pitfalls for incorporated entrepreneurs. For example: You withdraw $15,000 from the company’s account to renovate your kitchen, telling yourself that you’ll “settle it later.” If the balance isn’t repaid by the deadline, that $15,000 is added all at once to your personal taxable income, with no deduction for the corporation. Back-and-forth transactions (where you repay the money and then immediately withdraw it again) are also monitored and rejected. This rule is based on subsection 15(2) of the Income Tax Act (see the CRA Form S3-F1-C1). Consider this along with other ways to pay yourself: making a Capital dividend (CDA), to repay a down payment made when purchasing a Article 85 turnover, or watch out for TOSI If a family member receives a dividend. Carefully monitoring your account month by month helps you avoid unexpected bills. Bankeo connects you, for free, with a vetted accountant or CPA who helps incorporated business owners with this type of monitoring, and we’re here to support you every step of the way.

What exactly is a shareholder loan?

It’s money that you, as the owner, withdraw from your company without reporting it as salary or a dividend (share of profits). From the tax authorities’ perspective, the company has “lent” you this money: you must therefore repay it to the company; otherwise, it becomes taxable income for you.

What is the repayment period?

You must repay the loan no later than one year after the end of the company’s fiscal year (financial year) during which the loan was made. Example: A withdrawal made during the fiscal year ending December 31, 2025, must be repaid by December 31, 2026, to prevent it from being added to your income.

How can you avoid this problem?

When you plan your withdrawals in advance, whether it’s a salary, a dividend, or a repayment of money you personally invested in the company, each has its own implications. An accountant who tracks your advances throughout the year helps you avoid unpleasant surprises at the end of the fiscal year. Bankeo provides you, for free, with a vetted accountant or CPA who assists incorporated entrepreneurs with this tracking, and we’re here to support you every step of the way.