Understanding the Shareholder Loan

Understanding the Shareholder Loan.

How to Use it to your Advantage and Stay Compliant with CRA

If you are the owner-manager of a corporation, understanding the concept of the shareholder loan is essential to running your business. Below I will explain what a shareholder is and how to use it. After reading this article, you will become familiar with potential tax traps and how to avoid them.

We will discuss the following topics:

  • What is a shareholder loan?
  • What are the tax implications of the shareholder loan, and how to use it to your advantage?
  • How to avoid problems with the CRA

What is a shareholder loan?

In general, the balance of your shareholder loan represents the total owner cash drawn from your company minus the funds you have contributed.

Your shareholder loan will appear as an asset or liability on the balance sheet. If you contributed more cash to your company vs. what you drew out, the shareholder loan would be a liability on the balance sheet. When your owner’s cash draws exceed contributions, the shareholder loan will be an asset on the balance sheet.

Various types of transactions will affect the shareholder loan account. A few examples are:


If the shareholder deposits cash into the company bank account, the money can repay this money to the shareholder tax-free at some point. The company owes the shareholder this money, and the balance will appear as a liability on the balance sheet called “due to shareholder.”


It is common for owner-managed companies to pay for company expenses with a personal credit card. This type of transaction is treated like a cash contribution. The company gets a tax deduction that the shareholder can reimburse at some point.


If an owner draws cash from the company bank account, not dividends or salary, they are considered a shareholder loan and debt owed to the company. The total draws will appear as an asset on the balance sheet called “due from the shareholder.”


We often see company owners pay for some exciting things using their company funds. For example, a family trip to Mexico paid for on the company credit card is not tax deductible. When this happens and happens often, the transaction is treated like a cash withdrawal. The company cannot deduct the expense, and the amount will become a debt owed back to the company. 

We advise all our clients to pay for personal expenses with a personal credit card. You will have accurate bookkeeping records and spend less time explaining questionable transactions to your accountant or bookkeeper.

What are the tax implications of the shareholder loan, and how to use it to your advantage?

Many clients ask, “how do I pay myself from the company? And the typical answer is dividends or salary. However, you do not have to designate cash draws as dividends or salaries until fiscal year-end. In the meantime, you treat cash draws as a shareholder loan.  

In many start-up companies, the owner puts more cash into the business than they take out. Therefore, the running balance of the shareholder loan at fiscal year-end has a credit balance and appears as a liability on the balance sheet. Meaning the company owes the shareholder money. If this is the case, the owner does not have to declare any draws as dividends or salary and can take the shareholder loan balance out of the company tax-free at year-end. 

Suppose the running balance of your shareholder loan is in a debit position, which appears as an asset on your balance sheet. In that case, you typically declare the amount as dividends or a salary. Depending on your tax situation and business/personal goals, dividends or salary, or a combination of both, will be discussed with your Tax Accountant to determine the best method for you. 

Shareholder loans provide opportunities for tax planning. At RGB Accounting, we will assess your tax situation to determine the timing of dividends or salary that will minimize the amount you pay for personal and corporate tax combined.

How to avoid problems with the CRA

You may be thinking, “why don’t I repay the shareholder loan right before fiscal year-end, then borrow it again in the new year?” CRA is aware of this technicality and placed rules to prevent you from doing this. So, do not even think about trying it!

There is one final option if you owe your company money at the end of the year. You have one year from your fiscal year-end date to pay it back as a direct repayment, salary, or dividend. But be careful since your shareholder loan will be reported to CRA as an asset on your balance sheet at fiscal year-end. By reporting your shareholder loan as an asset on the balance sheet for two consecutive years in a row, you signal a red flag to CRA that you may not have included your shareholder loan as personal income.


The shareholder loan is a helpful tool for tax planning and cash management between the owner and the company. Used correctly, the timing of cash draws, dividends or salary can be advantageous.

Contact us today if you are looking for expert advice on shareholder loans. We will get an in-depth understanding of your specific situation and make sure you are set for success!

Other related articles:

Source: CRA



Events & Sponsorship

Talent Kids Event 2017

August 19, 2017 RGB Accounting has proudly sponsored the 2017 Talent Kids event organized by Pecora Events on August 19th. RGB Accounting wants to thank organizers, presenters, judges, and all participants for making this a great event. Here we share some of the...

Los Nocheros USA/Canada Tour 2017

June 02, 2017 Argentina's biggest folkloric phenomenon arrived in Toronto, Canada to celebrate its 30 years trajectory. RGB Accounting was one of the sponsors of the event. More from our blog   Newsletters Events & Sponsorship Articles &...

2nd Latin American Entrepreneur Conference

May 29, 2017 The Entrepreneur Conference was organized by the City of Toronto's Economic Development & Culture department in partnership with the Latin American Bi-Lateral Trade Initiative (LABTI) which consists of the Consulate Generals of Argentina, Brazil,...

Tax Season 2017 at La Liga Indoor Soccer

April 29, 2017 RGB Accounting has been sponsoring social events to promote cultural values in the hispanic community of Toronto and the GTA. The During the last tax season, RGB Accounting helped many individuals and small business owners to prepare their taxes,...

Articles & Publications

Tax impacts of leaving Canada to live elsewhere

Tax impacts of leaving Canada to live elsewhere. You must carefully consider numerous tax impacts before deciding to leave Canada to live elsewhere. Analyzing the termination of your tax residence is a question of fact. Generally, the Canada Revenue Agency will...

Selling your business shares to a family member?

Selling your business shares to a family member?   A new law means significant tax relief when you pass your business on to your kids.   A recent change to Canada’s Income Tax Act (ITA) could reduce the tax sting associated with selling your business shares...

Tax changes in the latest fiscal update.

Tax changes in the latest fiscal update. If you're working from home, you can claim up to $500 for office expenses with the temporary flat rate method There were very few broad-based tax changes in the recently released federal government's fall economic statement....

COVID-19 Update January 2022

COVID-19 Update   Federal   Expanding Access to the Local Lockdown Program (December 22, 2021) The Department of Finance announced that the government intends to expand the Local Lockdown Program eligibility to access the wage and rent subsidies to more...

Lockdown Program and Worker Lockdown Benefit

The Government of Canada Temporarily Expands Access to Lockdown Program and Worker Lockdown Benefit From: Department of Finance Canada News release December 22, 2021 - Ottawa, Ontario - Department of Finance Canada The Government of Canada is committed to supporting...