The shareholder loan account in Canada, and why it matters at year-end.

When you run your own corporation, money moves between you and the company all the time. You pay for software on your personal card. You transfer $3,000 to yourself because rent is due. You put in $10,000 to get the business started. All of that lands in one place. The shareholder loan account in Canada is one of the most important accounts on a small corporation's books, because the direction of the balance has real tax consequences.

This guide explains how the account works, walks through a full year of entries for a hypothetical Edmonton corporation, and covers how to set it up and keep it clean in QuickBooks Online.

1How the shareholder loan account works in Canada

Your corporation is a separate legal person. When money goes between you and it, the books have to record who owes whom. Some bookkeepers call this account "due to shareholder" or "due from shareholder"; it's the same idea.

Because it's set up as a liability, a credit balance is the "normal" direction: the company owes you. A debit balance means the account has flipped, and you now owe the company. If debits and credits still feel slippery, our debits and credits cheat sheet helps.

2The one-year rule, in plain English

CRA doesn't want owners using their corporation as a tax-free bank. So when a shareholder borrows from their corporation, the Income Tax Act generally says the loan must be repaid within one year after the end of the corporation's tax year in which it was made. If it isn't, the amount can be added to the shareholder's personal income for the year the loan was made, with no deduction for the corporation.

A few points worth knowing, described generally:

• Timing: with a December 31 year end, money you take in March 2026 generally needs to be repaid by December 31, 2027.
• Repayments that are really a series of loans (pay it back the day before the deadline, borrow it again the next day) can be ignored by CRA.
• Interest: a low or no-interest loan from your corporation can also create a taxable benefit for the interest you didn't pay.
• Exceptions exist in specific situations. They're narrow, so ask your accountant before relying on one.

This is general information, not tax advice. The rules have detail that matters, and your accountant should look at your specific balance.

3A worked example: one year of shareholder loan entries

Say you own a small marketing corporation with a December 31 year end. The figures are hypothetical. During the year:

• In January you put $10,000 of personal savings into the company to get started.
• Over the year you paid $2,400 of business software and supplies on your personal credit card.
• You transferred $28,000 from the business account to your personal account, whenever you needed it.

Entry 1: your startup money

Entry 2: business costs you paid personally

Assume the $2,400 includes GST of about $114 and the receipts are in the company's name or clearly for the business.

Entry 3: the money you took out

Where it lands at December 31

Credits of $12,400 ($10,000 + $2,400) minus debits of $28,000 leave a debit balance of $15,600. You owe the company $15,600. Without action, that balance starts the one-year clock.

Entry 4: clearing it with a dividend

After reviewing the year, your accountant suggests the corporation declare a $15,600 dividend, credited to the shareholder loan, backed by a directors' resolution and reported on a T5.

The loan is now zero. You'll pay personal tax on the dividend, but you've avoided the much worse outcome of the whole balance being added to your income with no corporate deduction. A salary bonus through payroll is the other common option. The choice is a tax planning question; see salary vs dividends in Alberta and retained earnings explained.

4When the company owes you

A credit balance, where the company owes you, is the comfortable side. It usually comes from money you put in at the start, or from business costs you paid personally and recorded properly. The corporation can repay that balance to you at any time, and the repayment isn't taxable, because it's your own money coming back.

That makes a credit balance genuinely useful. Say the company owes you $10,000 from startup. In a lean month you can transfer $3,000 to yourself and record it against the loan, with no payroll and no dividend needed. The balance drops to $7,000.

Two cautions:

• The balance has to be real. If the records behind it are missing (no bank transfer showing your contribution, no receipts for costs you paid personally), CRA may not accept it. Hold on to the evidence.
• Don't overdraw it. Once your withdrawals exceed what the company owes you, the account flips to a debit and the one-year rule starts to matter.

Some owners intentionally leave a credit balance in the company for years as a buffer. That's fine. Just make sure your accountant knows it's there, because it affects how they plan salary and dividends.

5Setting it up in QuickBooks Online

• Create the account in your Chart of accounts. Most bookkeepers use the Other Current Liabilities type and name it "Shareholder loan" (one per shareholder if there's more than one).
• Read the sign. Because it's a liability, a positive balance means the company owes you. A negative balance means you owe the company.
• Categorize owner transfers in the banking feed to the shareholder loan, never to an expense. A bank rule can do this automatically for regular transfers to your personal account.
• Record expenses you paid personally with a monthly journal entry that credits the shareholder loan, with the receipts attached. That way the company still gets the expense and the input tax credit.
• Run a QuickReport on the account each quarter to see every movement and the running balance.

6Common shareholder loan mistakes

• Owner transfers coded to "wages" or "management fees" without payroll. That isn't salary. CRA expects source deductions and a T4 for salary.
• Personal spending coded as business expense. It overstates expenses and can be treated as a shareholder benefit. It belongs in the loan. See personal expenses paid from the business account.
• No record of money you put in. If you paid business costs personally and never recorded them, the company can't repay you tax-free and you lose the expense.
• Looking at it once a year. By then the balance can be bigger than retained earnings can support.
• One account for two shareholders. Each shareholder needs their own balance.

7Quarterly shareholder loan check

Plum keeps the shareholder loan reconciled every month for incorporated owners in Edmonton, St. Albert, Sherwood Park and Leduc, so your accountant has a clean balance to plan around. Book a call if yours hasn't been looked at in a while.

8Questions people ask

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This article is general information for Alberta businesses and isn't tax or legal advice. Rules and thresholds change, so confirm your situation with your accountant or CRA.