Shareholder loan account: credit means the company owes the owner

What does a credit or debit balance in the shareholder loan account mean?

The shareholder loan account is one running account that nets everything moving between the company and its owner: money the owner puts in, company bills the owner pays personally, personal bills the company pays, cash drawn out, and dividends or salary credited. The CRA's folio calls these loan accounts, drawings accounts or similar names, and says 15(2) can reach any of them canada.ca. Which side the balance sits on decides both the balance sheet line and the tax exposure.

RC4088 also has a director line on each side (1303, 2183, 2783, 3263), plus generic items 1300, 2180, 2780 and 3260 for when you can't split the balance canada.ca. Use the current item when you expect the balance to be settled within the next year, and the long term item when you don't. The rest of the code list is on the GIFI codes page.

The tax rules for a debit balance, including the repayment deadline table and the series trap, are on the shareholder loan CRA rules page. This page is about keeping the account clean enough that those rules never bite.

Which journal entry records each shareholder account transaction?

Almost every entry touches the same account, called Due to/from shareholder here. A credit increases what the company owes your client; a debit reduces it, and pushes the account into debit once the credit is used up.

Personal bills paid by the company belong in this account, not in an expense account. The folio's own example adds personal expenses the company paid to the shareholder's loan balance canada.ca. Expense them instead and the CRA can assess the full amount as a shareholder benefit under 15(1), with no deduction for the company.

The entry alone doesn't settle the tax answer. The folio says whether a loan was received isn't based on accounting entries (paragraph 1.14), and where there's no written agreement or convincing evidence of a loan, 15(1) may apply in place of 15(2) (paragraph 1.13). A corporate resolution reflected in the financial statements is the kind of evidence it accepts canada.ca.

Can a clean December 31 balance hide a debit during the year?

Your client is the only shareholder of Opco. The account opens 2026 with a $12,000 credit, the startup money your client lent in, backed by bank deposits. Here is the year.

The year end balance looks fine, and a review that checks only December 31 misses the problem. From September 30 to December 20 your client owed Opco $2,600. That's a loan. Because it was repaid well before December 31, 2027, which is one year after the end of the tax year it was made in, 15(2) doesn't include it in income, as long as the repayment wasn't part of a series of loans and repayments laws-lois.justice.gc.ca. It's off Schedule 11 too, because column 400 asks only for loans not repaid by the end of the tax year canada.ca.

The interest benefit still applies for the 81 days the debit was outstanding. The prescribed rate for shareholder loans is 3% for October to December 2026, and it was 3% in every earlier 2026 quarter canada.ca. So $2,600 x 3% x 81/365 = $17.31 goes into your client's 2026 income under 80.4(2), less any interest they pay by January 30, 2027 laws-lois.justice.gc.ca. Small here, but the same arithmetic on a $150,000 debit for six months is $2,250.

The withdrawals before September 30 created no income. They drew down money the company already owed your client.

When can your client withdraw a credit balance without tax?

A credit balance is a debt the company owes your client, so drawing it down repays that debt. The CRA's audit manual says a credit for compensation, interest or rent is generally a debt and not a 15(1) benefit, and that a mere bookkeeping entry in the account doesn't in itself create a taxable benefit canada.ca.

The catch is support. When your client draws on a credit balance that existed before the year under audit, the manual says the taxpayer will be required to support the balance to the extent of the funds withdrawn. If they can't, the CRA may treat the withdrawal as a shareholder benefit or an appropriation canada.ca. The manual tells auditors to verify any credit balance, and adds that the CRA has no authority to adjust an opening balance itself. The test comes when money leaves.

Two traps sit in that table. Credited salary and dividends, and in some cases interest, are taxable only when received, and the manual counts them as received when the credit reduces a debit balance canada.ca. And income the company never recorded doesn't become a clean credit by being lent back: the manual taxes suppressed income the shareholder appropriated under 15(1) even when the funds were loaned back to the corporation. A posting error can be reversed only while your client hasn't benefited from it by drawing on the account, so fix errors before any withdrawal.

A dividend credited against a debit balance repays it. The folio accepts repayment by set off against a dividend, salary or bonus (paragraph 1.82) and doesn't treat those repayments as part of a series, even if new borrowing follows (paragraph 1.86) canada.ca. The dividend has to be real: see the dividend resolution page for what the minutes need.

How is interest on money the shareholder lends to the company handled?

Your client doesn't have to charge interest on a credit balance, but if the company pays it, the company can deduct it under 20(1)(c) when the borrowed money is used to earn income from the business, up to a reasonable amount laws-lois.justice.gc.ca. Tracing and the reasonable rate test are covered on the interest deductibility page. Set the rate in a resolution or loan agreement before the interest starts to accrue.

Your client reports the interest as income. The company issues a T5 when the year's total to that recipient is $50 or more, and files the T5 return by the last day of February after the calendar year canada.ca. Deadlines for the slip are on the T5 slip deadline page.

Accrued interest that the company deducts but never pays has a time limit. Under 78(1), an expense owed to a person the company doesn't deal with at arm's length that's still unpaid at the end of the second tax year after the year it was incurred is added back to the company's income in the third year laws-lois.justice.gc.ca. Interest accrued in 2026 and still unpaid at December 31, 2028 lands in 2029 income. The way out is a joint agreement on Form T2047, Agreement in Respect of Unpaid Amounts, filed by the due date of that third year's return canada.ca. It deems the interest paid and lent back. See the section 78 page.

What should you check in the shareholder loan account at year end?

The CRA's audit steps make a good year end routine, because they're what an auditor will do to the same account: reconcile it to the financial statements, split debits from credits, apply repayments to the oldest debt first, and strip out incorrect entries and their corrections canada.ca. Run them before the T2 goes out.

Step 5 trips up accrued bonuses. Under 78(4), unpaid salary, wages or other remuneration still owing 180 days after the end of the tax year is deemed not to be an expense of that year, and is deductible in the year it's paid laws-lois.justice.gc.ca. Crediting the bonus to the shareholder account doesn't count as receiving it unless the credit reduces a debit balance canada.ca.

Keep a separate subaccount for each shareholder and for each related person. Subsection 15(2) applies borrower by borrower, and it reaches a person connected with a shareholder, such as a spouse laws-lois.justice.gc.ca. The wider list of closing tasks is on the bookkeeping year end checklist, and the Schedule 11 columns are on the Schedule 11 page.