Pulling Cash Out of Your Corporation Without Paperwork? The CRA Has a Name for That

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The corporation had the cash. The owner needed some of it, for a down payment or a relative's business or a truck that couldn't wait. So the money moved, and nothing got written down. It's the family's company, after all.

Then the accountant opens the books in the spring and finds a debit balance in the shareholder account. Under the Income Tax Act, that balance has a name. It's a shareholder loan, and Ottawa has rules about it.

What the rule actually says

Under subsection 15(2) of the Income Tax Act , if a shareholder (or someone connected to a shareholder) receives a loan from the corporation, the amount is added to that person's income for the year. The rule also reaches spouses, family members, trusts and related corporations , so lending the money to a relative doesn't get you around it.

There's one big exception. The loan isn't taxed as income if it's repaid within one year after the end of the corporation's tax year in which the loan was made. Say your corporation's year-end is December 31. You take money in March 2026. The deadline is December 31, 2027. Your personal tax year doesn't set the clock. The corporation's does.

The CRA also replaced its old 1998 bulletin on this topic with a new income tax folio in April 2025 . If your advice about shareholder loans is a few years old, ask your accountant whether it still holds.

"Just repay it before year-end" is the wrong lesson

This is the common advice, and it's half right. The repayment exception exists. But the statute says the repayment can't be part of a series of loans or other transactions and repayments . Practitioners say the CRA and the courts read that broadly , and that the classic problem is repaying shortly before year-end and withdrawing again soon after.

So clearing the balance on December 30 and taking it back out in January isn't a fix. It's the exact pattern the rule is written to catch. The same source adds that a journal entry alone generally won't establish repayment. Money has to actually move, and the bank records have to show it.

Interest-free isn't free

Even a loan that stays inside the repayment window can carry a cost. The CRA says that when a low-interest or interest-free loan is tied to a shareholding, the interest benefit is taxable . It's calculated quarter by quarter, on the balance outstanding, using the prescribed rate. For October 1 to December 31, 2026, that rate is 3% . It changes every quarter, so a loan that sits for two years gets re-priced eight times.

Shareholder loan benefits are reported on the corporation's T4A slip under code 117 , and no payroll deductions are withheld on them. The shareholder is the one who has to deal with the tax.

Family corporations are exposed here for a plain reason. Decisions get made at the kitchen table, and the books get reconciled months later. By the time the accountant sees the balance, the money has been spent and the window is already running. Nobody did anything sneaky. The paperwork just came second, and the CRA reads the paperwork.

What "formal" looks like in practice

None of this requires a lawyer for every transfer. It requires habits. Four that are worth building:

Record the loan when the money leaves, with a short written resolution or note that says it is a loan.

Put terms on paper: the amount, the interest rate, and the date it's due.

Repay by real bank transfer, and don't re-borrow the same money a few weeks later.

Put the corporation's year-end deadline in a calendar, and review every shareholder balance with your accountant before that date.

If repaying isn't realistic, a dividend or a salary or bonus is sometimes used instead. Each has its own tax consequences , so that's a conversation to have before the deadline, not after.

Key takeaways

Money you take from your corporation is either pay, a dividend, or a loan, and the paperwork should say which. A loan has to be repaid within one year after the corporation's year-end, and the repayment has to be real. Cycling the same cash out and back in is the thing the rule targets. If the loan is interest-free, expect a taxable benefit at the CRA's prescribed rate. For many family-run corporations, trust has worked fine for decades. This is one place where it needs a written record behind it.

We built our Chamber so Punjabi-Canadian business owners could compare notes on exactly this kind of thing. Come to a monthly social and ask the person next to you how they handle it.

This is general information, not legal or financial advice. Talk to a qualified accountant before you change how you take money out of your corporation.

Sources

Income Tax Act, section 15 (Justice Laws, Government of Canada)

CRA: Interest rates for the fourth calendar quarter of 2026

CRA: Loans and employee debt

CRA: Shareholder benefits

Rotfleisch & Samulovitch P.C.: CRA Shareholder Loan Rules in Canada (Mondaq, June 2026)

The CRA Issues a New Income Tax Folio on Shareholder Loans and Debts (Legal 500, August 2025)