Shareholder Loans and CRA Rules in 2026: What Every Canadian Business Owner Needs to Know

Shareholder loans are one of the most common tools for owner-managers to move money between themselves and their corporations — and one of the most frequently audited areas by CRA. The rules under subsection 15(2) of the Income Tax Act are unforgiving: borrow from your company and fail to repay within the prescribed window, and the full amount becomes taxable income.

What is the shareholder loan repayment rule under CRA?

Under subsection 15(2), a loan from a corporation to a shareholder must be repaid by the end of the corporation’s taxation year following the year in which the loan was made. If the loan was made in the fiscal year ending December 31, 2025, it must be repaid by December 31, 2026. Failure to repay includes the full loan amount in the shareholder’s personal income for the year the loan was made.

What are the exceptions to the shareholder loan income inclusion rule?

Three key exceptions exist under subsection 15(2.4): (1) home purchase loans — to acquire a home for the shareholder’s personal use; (2) automobile loans — to purchase an automobile used in the employment duties of a shareholder-employee; (3) share purchase loans — to purchase shares from the company’s treasury. In all cases, bona fide repayment arrangements must exist and be documented at the time the loan is made.

Must a corporation charge interest on shareholder loans?

If a shareholder loan is made at less than the CRA prescribed rate, the difference is a taxable employee/shareholder benefit under section 80.4. To avoid this, the corporation should charge interest at least equal to the CRA prescribed rate (confirm the current quarter’s rate at CRA’s website). Interest charged must actually be paid by January 30 of the following year or it is deemed unpaid.

What happens if a shareholder repays and re-borrows repeatedly?

CRA watches for “series of loans and repayments” designed to circumvent the one-year rule. If CRA determines a repayment was not genuine — for example, the same amount was re-borrowed immediately after repayment — the original loan is still included in income. Genuine repayments must be demonstrated through bank records and should not be funded by a new loan from the same corporation.

How should a shareholder loan be documented to survive a CRA audit?

Best practices: (1) execute a written loan agreement with repayment terms and interest rate at inception; (2) pass a director resolution authorizing the loan; (3) record it as a liability on the corporate balance sheet; (4) ensure actual interest payments are made by January 30; and (5) maintain a running shareholder loan ledger in your bookkeeping. A CPA should review the balance at each year-end.

Can a shareholder loan be converted to salary or dividends to avoid income inclusion?

Yes — if a bonus or dividend is declared and properly documented before the repayment deadline, it can offset the loan balance. The salary or dividend is taxable in the shareholder’s hands, but this avoids the harsher double-taxation risk of the subsection 15(2) inclusion plus potential interest and penalties.

Reviewed by: Bader A. Chowdry, CPA CA LPA — Insight Accounting CPA Professional Corporation, Mississauga, Ontario. Last reviewed: June 6, 2026.