Shareholder loans: taking money out of your corp

The four ways to pull cash out of a corporation

Once your business is incorporated, the corporation's bank account isn't your bank account — even though you own the shares. Money moves from the corporation to you through one of four channels:

1. Salary — taxed as employment income to you, deductible to the corporation, and generates RRSP room and CPP contributions.
2. Dividends — paid from after-tax corporate income, taxed to you at dividend tax rates with a dividend tax credit, no CPP or RRSP room generated.
3. Repayment of a shareholder loan you funded — if you've personally lent money to the corporation (startup capital, for example), the corporation can repay you tax-free, since it's simply returning your own capital.
4. A shareholder loan from the corporation to you — the corporation lends you money. This is the one that comes with strict rules.

For most owner-managers, the real decision is between salary and dividends — see our companion post on salary vs. dividends and our salary vs. dividends calculator for that comparison. This article focuses on option 4: what happens when you (or the corporation) loan money the other way.

The one-year repayment rule

Under subsection 15(2) of the Income Tax Act, if you (or a person connected to you) borrow money from your corporation, that loan must generally be repaid within one year after the end of the corporation's tax year in which the loan was made. Miss that window and the entire unpaid balance gets added to your personal income — for the year the loan was originally made, not the year it went offside.

There's also an anti-avoidance piece: you can't repay a loan right before the deadline and then simply re-borrow the same amount shortly after as part of a "series of loans and repayments." CRA looks at the substance of what happened, not just the paperwork.

The deemed-interest-benefit if the loan sits outstanding

Even a shareholder loan that's repaid on time and stays under the one-year rule isn't automatically free of tax consequences. If the corporation doesn't charge you interest at least equal to the CRA prescribed rate, you're considered to have received a taxable benefit — essentially, the interest you should have paid but didn't. That benefit is calculated quarter by quarter using whatever the prescribed rate is during each period the loan is outstanding. As of Q3 2026, the prescribed rate used for this calculation is 3%. Because the rate is reviewed and can change quarterly, the benefit calculation needs to track the applicable rate for each period, not just the rate on the day the loan was made.

Why "I'll just take draws" is a dangerous habit

Sole proprietors take draws all the time — there's no legal separation between them and the business, so it's simply moving their own money. Once incorporated, that same instinct becomes a shareholder loan whether or not anyone calls it that. Owner-managers who repeatedly pull cash out of the corporation without running it through salary, dividends, or a documented loan often discover at year-end that CRA (or their own accountant) is now looking at:

• A large shareholder loan balance that's about to breach the one-year rule
• An unplanned personal income inclusion for the full amount
• A deemed-interest benefit stacked on top
• No corresponding corporate deduction, since it isn't salary or dividends

The fix is planning ahead: decide at the start of the year (or with your accountant at year-end) how you'll be paid, and treat any interim draws as advances against salary or dividends that get formally documented and cleaned up before the corporate year-end, not left to compound.

The good news: your own shareholder loan account

If you've personally put money into the corporation — startup capital, covering an early cash shortfall, or leaving profits in rather than drawing them out — the corporation owes you. That balance sits in a shareholder loan (or "due to shareholder") account, and the corporation can repay it to you at any time, in any amount, completely tax-free, because it's simply the return of your own capital, not income. Many owner-managers who've funded their corporation from personal savings don't realize they have this tax-free withdrawal room sitting on the balance sheet.

The bottom line

Salary and dividends are the sustainable, well-understood ways to pay yourself. A shareholder loan from the corporation to you is meant to be short and repaid within the one-year window, with interest at or above the prescribed rate if it's outstanding for any length of time. If you've lent your corporation money, check whether you have a tax-free repayment balance available before assuming a fresh withdrawal has to be salary or dividends. Because the timing rules and prescribed rate both matter and both change, this is a conversation to have with your accountant before, not after, the money moves. Our business advisory and tax services teams can review your shareholder loan account and help structure withdrawals correctly.

This article is general information, not tax advice — confirm your specific situation with EverStone CPA.

About the author

Sunny Dhillon, CPA

Founder of EverStone CPA, a family-owned Abbotsford firm, and a member of the Chartered Professional Accountants of British Columbia (CPABC). Sunny works with incorporated contractors and small business owners across Canada on tax, bookkeeping and advisory. More about Sunny →