Shareholder loan CRA rules: repay within one year of year end

The 15(2) inclusion and the repayment deadline

Subsection 15(2) puts the full amount of a loan into income for the year it's received when the borrower is a shareholder, is connected with a shareholder, or is a member of a partnership or a beneficiary of a trust that holds the shares laws-lois.justice.gc.ca. The lender can be the corporation, a related corporation, or a partnership that either one is a member of. Connected means the borrower doesn't deal at arm's length with the shareholder or is affiliated with them, so a loan to a relative of the shareholder is caught too.

Two borrowers sit outside the rule. A corporation resident in Canada is excluded by the opening words of 15(2), and 15(2.2) switches the rule off for a debt between two non residents.

The exit most owner managers use is 15(2.6). The inclusion doesn't apply to a loan repaid within one year after the end of the lender's tax year in which it was made, as long as the repayment wasn't part of a series of loans or other transactions and repayments laws-lois.justice.gc.ca. The clock runs on the corporation's year end, not on your client's calendar year.

A loan taken on January 2 gets almost two years. One taken on December 30 gets a year and a day. When the deadline is missed, the inclusion lands in the year the loan was made, not the year the deadline passed, and the CRA's folio says returns may need to be amended once the outcome is known canada.ca.

Worked example: a $60,000 loan, partly repaid

Your client owns all the shares of Opco, which has a December 31 year end. On July 1, 2026, Opco lends them $60,000 with no interest. No employee exception applies. On December 15, 2027, Opco declares a $40,000 dividend and applies it against the loan. The other $20,000 is still owing on December 31, 2027. Your client repays it from personal savings in 2028.

The $600 covers only the $40,000, because the $20,000 is already in income and 80.4(3)(b) stops the same amount being taxed twice. For 2027, the benefit runs on the $40,000 until December 15 at whatever 2027's quarterly prescribed rates turn out to be. Those rates aren't published yet. If any interest is paid by January 30, 2027, it comes off the 2026 benefit.

This follows the folio's own pattern. Its Example 3 has a borrower who repays $35,000 of a $50,000 loan inside the window and picks up the other $15,000 in the year the loan was made.

The CRA position on a series of loans and repayments

The series condition exists to stop a shareholder repaying an old loan with a new one and deferring tax forever. The CRA generally treats a repayment as part of a series where all or part of a loan is repaid before the lender's year end and an amount is borrowed again canada.ca.

The folio's Example 5 is the classic case. The shareholder repays at year end with a bank loan, then borrows the money back from the company in January. That's a series, and the 15(2.6) exception is lost on the original loan.

Paying the loan down with a dividend, salary or bonus owed to the shareholder is different. The folio says those repayments aren't part of a series, even if more borrowing follows (paragraph 1.86). In its Example 6, a dividend applied to the loan clears it, and a later separate advance is a new loan with its own deadline.

Four folio positions decide most shareholder account files:

So a year end credit to the shareholder account only counts if the dividend or bonus behind it is real: declared, and reported on the T5 or T4.

Employee and lending business exceptions

Subsection 15(2.4) carves out four kinds of loans made to employees laws-lois.justice.gc.ca. Subsection 15(2.3) separately covers lenders in the business of lending money.

Every 15(2.4) loan also has to pass two conditions. Under (e), it must be reasonable to conclude the loan was made because of the employment and not because of anyone's shareholdings. Under (f), bona fide arrangements for repayment within a reasonable time must exist when the loan is made. The 15(2.3) exception carries the same bona fide test, and a money lending business fails it if less than 90% of its outstanding loans are owed by arm's length borrowers.

A specified employee is one who doesn't deal at arm's length with the employer or who is a specified shareholder, which generally means owning 10% or more of any class of shares, directly or indirectly canada.ca. That rules (a) out for nearly every owner manager.

The employment test is where most owner manager claims fail. The folio points to employment when the loan is on the same terms offered to employees who aren't shareholders. It points to shareholding when the company lends only to shareholders, gives them better terms, lends a large amount relative to retained earnings, or takes no security on a large loan (paragraphs 1.58 and 1.59). If the company has no other employees, the first indicator can't help your client.

On bona fide arrangements, the folio looks at whether the borrower has kept to the schedule and whether the repayment period can be worked out with some certainty. A repayment tied to the uncertain future value of shares fails (paragraph 1.68).

The deemed interest benefit at 3% for 2026

A loan that escapes 15(2) can still create a benefit under 80.4(2). It's interest at the prescribed rate for each period the loan is outstanding in the year, less interest your client paid in the year or within 30 days after it ends laws-lois.justice.gc.ca.

The prescribed rate for taxable benefits on employee and shareholder loans was 3% in every quarter of 2026, including October 1 to December 31 canada.ca. The full quarterly table is on our prescribed rates page. The CRA sets the rate quarterly from the 90 day Treasury bill rate, so check each quarter separately when the loan spans a change.

Three limits apply. There's no 80.4(2) benefit on an amount already included in income, which is 80.4(3)(b). It doesn't apply when the borrower is a corporation resident in Canada. And under section 80.5 the benefit is treated as interest paid, so your client can deduct it under 20(1)(c) if the loan was used to earn income canada.ca.

Repaying after the deadline: the 20(1)(j) deduction

When a loan already taxed under 15(2) is repaid later, paragraph 20(1)(j) lets your client deduct the repaid part in the year of repayment, if the repayment wasn't made as part of a series of loans or other transactions and repayments laws-lois.justice.gc.ca.

The deduction doesn't reopen the original year. In the worked example, the $20,000 is income in 2026 and a deduction in 2028, and your client's marginal rate in those two years may not match. The folio adds that an estate's legal representative can claim the deduction for a repayment of the deceased's loan, but a beneficiary repaying it can't (paragraph 1.78) canada.ca.