Shareholder Loans and the Trap in Section 15(2)

It starts innocently. The company pays a personal expense. You take money out mid-year and plan to characterize it at year end. The shareholder loan account drifts. Then it does not get repaid, and the rule applies.

The Rule

Broadly: if you borrow from your corporation and the balance is still outstanding at the end of the corporation's next fiscal year end, the full amount can be included in your personal income for the year you took it. Not the year it was assessed, the year you took it. Interest and penalties follow.

Also Relevant: The Benefit on the Loan Itself

Even where the loan is permitted, an interest-free or low-interest balance creates a taxable benefit calculated at the prescribed rate. Paying actual interest to the corporation within thirty days of year end eliminates it.

How Founders Should Handle Draws

• Decide up front how you are paid, and pay yourself that way, salary, dividend, or a documented mix.
• If you must draw ad hoc, reconcile the loan account monthly and clear it deliberately, by declaring salary or a dividend, before the deadline.
• Keep personal expenses off corporate cards. The cleanup cost exceeds the convenience every time.
• If a genuine loan is intended, document it properly with terms and a repayment schedule and charge interest.

What to Do

1. Ask for your current shareholder loan balance. Today, not at year end.
2. If it is in debit, decide now how it will be cleared and by which date.
3. Put a monthly reconciliation of the account into the close checklist.

General information for Canadian founders, current to 2026. It is not tax advice and does not account for your specific facts. Rates, thresholds and rules change, confirm the current figures before acting.