The shareholder loan account: your running tab with your own company.
When you incorporate, you and your corporation become two separate legal “people.” Money moves back and forth between you all the time — and the shareholder loan account is simply the running tab that keeps score of who owes whom. Once you can see which way the balance is pointing, a lot of small-business tax confusion clears up.
Your corporation is a separate person from you. Every time value moves between the two of you, the shareholder loan account records it — and either you owe the company, or the company owes you.
Think of it like a tab at a café you happen to own. Sometimes you grab a coffee and forget your wallet — now you owe the café. Sometimes you slip $20 from your own pocket into the till to make change — now the café owes you. Nobody is stealing from anyone; the tab just keeps track so it can be settled later. The shareholder loan account is that tab, written into your company’s books.
It shows up as a single line on the corporation’s balance sheet, and it can point in either direction:
Draws and contributions push the balance opposite ways.
Every transaction between you and your corporation nudges the tab one way or the other.
You take money or value out.
The company pays one of your personal expenses, or hands you cash that isn’t payroll or a declared dividend. You’ve effectively borrowed from the corporation.
You put money or value in.
You lend the business your own cash, or you cover a genuine business cost out of your personal pocket. You’ve effectively lent to the corporation.
Which direction is which? When the balance says you owe the company (an amount the corporation is owed by you), that’s the one with tax strings attached — more on that below. When the balance says the company owes you, that’s money you can draw back out later, tax-free, because you already paid tax on it before it went in.
The same account, four common moves.
Watch which way each one pushes the balance.
You add funds to the corporation
You transfer $10,000 of personal savings into the business account to help cover payroll during a slow month.
The corporation pays a personal expense
The company’s card is used to pay your personal $3,000 credit-card bill — nothing to do with the business.
You pay a business expense personally
You buy $500 of materials for a job on your own personal credit card because the company card was declined.
A bonus or dividend is declared
At year-end the company declares a bonus or dividend to you and applies it against the tab instead of paying cash.
One year on the tab.
Here’s how a year of moves might roll up into a single running balance. Positive means the company owes you; negative means you owe the company.
| Transaction | Effect | Running balance |
|---|---|---|
| Opening balance | — | $0 |
| You lend the company personal cash (contribution) | +$10,000 | +$10,000 |
| Company pays your personal expenses through the year (draws) | −$45,000 | −$35,000 |
| You pay a business cost on your personal card (contribution) | +$2,000 | −$33,000 |
| Year-end: declare a $33,000 bonus or dividend, applied to the tab | +$33,000 | $0 |
Positive = the company owes you (you can draw it tax-free). Negative = you owe the company (the balance with tax rules attached).
A balance you owe the company can’t just sit there.
There’s a second, smaller catch while a balance is outstanding. An interest-free loan from your company is treated as a small taxable perk: CRA imputes interest at its prescribed rate (set quarterly) and adds that as a benefit on your personal return, unless the company actually charges — and you pay — interest at that rate. It’s rarely a large number, but it’s one more reason not to let the balance linger.
So each year-end, the balance is squared up. The interesting question is how — because a bonus and a dividend clear the tab in very different ways.
Bonus vs. dividend.
Both can wipe out a balance you owe the company. They’re taxed — and sourced — quite differently.
| Bonus / salary | Dividend | |
|---|---|---|
| Where it’s paid from | Declared as compensation for work — before the company’s profit is calculated. | Paid out of retained earnings — profit the company has already paid corporate tax on. |
| Effect on the company | Deductible. It lowers the corporation’s taxable income, so the company pays less corporate tax. | Not deductible. It doesn’t reduce corporate income — the tax was already paid before the profit could be distributed. |
| How you’re taxed | Employment income on a T4, taxed at your regular personal rates. | Dividend income on a T5, “grossed up” and then reduced by the dividend tax credit — often a lower personal rate. |
| Payroll & CPP | Runs through payroll: source deductions are withheld and CPP is payable. Builds CPP and RRSP room. | No payroll, no source deductions, no CPP. Builds no RRSP room and no CPP. |
| Paperwork | Payroll remittances and a T4 slip. | A directors’ resolution and a T5 slip. |
Neither is automatically “better.” A bonus creates a corporate deduction and builds CPP and RRSP room, but comes with payroll and higher personal rates. A dividend is simpler and often taxes more gently, but it’s paid from already-taxed profits and builds no retirement room. The right mix depends on the numbers — which is exactly what our salary vs. dividends calculator is built to compare.
And remember the direction: this only applies when you owe the company. If the balance runs the other way — the company owes you — you don’t need a bonus or dividend at all. You can simply draw that money back out, tax-free, whenever the cash allows.
Common questions.
Is a shareholder loan itself taxable?
Not on its own. Borrowing from or lending to your own company isn’t income. What can become taxable is a balance you owe the company that isn’t repaid in time (the one-year rule), plus the small imputed-interest benefit while it’s outstanding.
What if the company owes me, not the other way around?
That’s the comfortable direction. It means you’ve funded the business with after-tax dollars, so you can withdraw that amount later without paying tax on it again — no bonus or dividend required. It’s simply a repayment of what the company owes you.
Can I just repay the balance in cash instead of declaring a bonus or dividend?
Yes. Repaying the loan with personal funds clears it too. Just avoid the pattern of repaying right before year-end and re-borrowing the same amount right after — CRA treats that “series of loans and repayments” as if the balance never went away.
Do I have to charge interest on the loan?
If you owe the company and pay no interest, CRA imputes a taxable benefit at its prescribed rate (updated quarterly). The company can instead charge you interest at that rate — paid within 30 days of year-end — to avoid the benefit. For balances that are cleared each year, this is usually a minor consideration.
How do I keep this clean day to day?
Keep business and personal spending separate wherever you can, code any crossovers to the shareholder loan account, and review the balance with your accountant before year-end — while there’s still time to plan the bonus/dividend mix. A tidy loan account makes year-end faster and cheaper.
Not sure which way your loan account is pointing?
We’ll read your balance, plan the year-end bonus-and-dividend mix, and keep the account clean so there are no surprises. That’s day-to-day work for us.