How to Record a Shareholder Loan

A shareholder loan tracks money flowing between you and your corporation. Get the recording right — and understand the CRA's one-year repayment rule.

How to Record a Shareholder Loan

A shareholder loan is money that flows between you (the shareholder) and your corporation — either you lending money to the corporation, or the corporation lending money to you. It's one of the most commonly used — and most commonly mishandled — accounts for incorporated business owners.

This article covers how it works and how to record it correctly in QBO.

What Is a Shareholder Loan?

The shareholder loan account on your corporation's Balance Sheet tracks the running balance between you and the company:

You owe the corporation (debit balance): You've taken more out than you've put in. The corporation has lent you money.

The corporation owes you (credit balance): You've put more in than you've taken out. The corporation owes you money.

Common transactions that flow through the shareholder loan account:

The CRA's Rules on Shareholder Loans

The CRA watches shareholder loans closely. Two rules matter most:

1. The one-year rule

If you borrow money from your corporation (debit balance), it must be repaid within one year after the end of the corporation's fiscal year in which the loan was made. If it isn't repaid in time, the full amount is included in your personal income for that year.

Example: If your fiscal year-end is December 31, 2024, and you borrowed $30,000 from the corporation in 2024, it must be repaid by December 31, 2025.

2. Back-to-back loans

You can't avoid the one-year rule by repaying the loan just before the deadline and immediately borrowing again. The CRA looks at the pattern, not just the end-of-period balance.

Normal Procedure

Recording Money You Took From the Corporation (You Owe the Company)

1. Go to + New > Expense (or record it when it shows up in the bank feed).
2. In the Payment account field, select your business chequing account.
3. In the Category field, select Shareholder Loan (a liability account).
4. Enter the amount and date.
5. Save.

This records the cash leaving the business account and increases what you owe the corporation.

Recording a Business Expense You Paid Personally (Corporation Owes You)

1. Go to + New > Expense.
2. In the Payment account field, select the Shareholder Loan account.
3. In the Category field, select the correct expense account (e.g., Office Supplies, Travel).
4. Enter the amount and date.
5. Save.

This records the business expense and increases what the corporation owes you.

Recording Repayment

When money moves to settle the shareholder loan balance:

1. Go to + New > Transfer (if moving between business accounts) or + New > Expense (if repaying from business to personal).
2. Record the transfer to/from the Shareholder Loan account.
3. The balance reduces accordingly.

Abnormal Procedures

Your shareholder loan has a large debit balance at year-end.

Talk to your Mesa CPA advisor before year-end — not after. If the balance won't be repaid within the CRA's one-year window, your advisor may recommend declaring a salary or dividend to clear it instead, which has different tax implications.

You've been putting personal and business transactions through the shareholder loan without tracking them.

You need a reconciliation. Compile all transactions and work with your Mesa CPA bookkeeper to sort them. The shareholder loan account should have a running record of every transaction, not just an unexplained lump sum.

The corporation lent money to a family member (not just the shareholder).

Additional rules apply to loans to family members or other employees. These are treated differently and may trigger income inclusion. Get advice from your Mesa CPA advisor before these loans are made.

FAQ

Does the shareholder loan need to be at a formal interest rate?

Not always — the one-year repayment rule is the main concern for most small business owners. However, if the loan exceeds the one-year window or is a longer-term arrangement, the CRA's prescribed interest rate may apply. Your Mesa CPA advisor will advise based on your specific situation.

Can I use the shareholder loan to avoid paying personal taxes?

Not indefinitely. The one-year rule exists specifically to prevent shareholders from taking tax-free loans from their corporations. Unrepaid loans are included in personal income — which means the tax is ultimately paid.

What's the difference between a shareholder loan and owner's drawings?

Owner's drawings applies to sole proprietors — it's simply money taken out of an unincorporated business. A shareholder loan applies to corporations, where the owner and the company are legally separate. The accounting and tax rules are different.

Can I have a credit balance in my shareholder loan permanently?

Yes — if you've lent money to the corporation or paid business expenses personally over the years, the corporation can owe you indefinitely. This is common and not a problem. The concern is the reverse (you owing the corporation long-term).