A shareholder loan is money borrowed from or lent to a corporation, and the CRA monitors it closely to ensure it is not used as a tax-free substitute for salary or dividends.
Shareholder loans flow in both directions. The owner may lend money to the corporation to fund operations. Or the corporation may advance funds to the shareholder to cover personal expenses, finance a home purchase, or bridge a cash need. The second scenario is where the risk sits.
Amounts borrowed from a corporation must generally be repaid by the end of the fiscal year following the year the loan was received. If not repaid within that period, the outstanding balance is included in the shareholder’s personal income, with no corresponding corporate deduction. Repaying and re-borrowing around the deadline is a tactic the CRA is aware of and will challenge.
See also: Deemed Dividend · Non-Arm’s Length Transaction · Salary vs DividendsA shareholder loan that remains outstanding too long can create an unexpected personal tax liability. See how Wefinx approaches tax planning.