How do shareholder loans work in Canada?

Shareholder loans are typically reported and tracked on a corporation's balance sheet. When a shareholder withdraws money from the corporation, it is recorded as an asset, often labeled 'Due from Shareholder.' Conversely, if a shareholder lends money to the corporation, it is recorded as a liability under 'Due to Shareholder.'

At the fiscal year-end, the net balance for each shareholder is assessed. If the net amount is positive, it indicates that the shareholder owes money to the corporation, which is recorded as an asset. Typically, this amount must be repaid within a year; otherwise, the shareholder must report the balance on their personal tax return and pay the applicable taxes. If the net amount is negative, it indicates the corporation owes money to the shareholder, and no personal tax obligation arises. This amount is recorded as a liability. Repayment terms are usually outlined in the Notes to Financial Statements.

If the money withdrawn by the shareholder is not repaid within one year of the fiscal year-end, the Canada Revenue Agency (CRA) treats the loan as personal income. The CRA may include the amount in the shareholder's income for the year the loan was originally made.