As the year winds down, many Alberta business owners are focused on closing their books, managing payroll, and preparing for tax season. One important area that often gets overlooked, but can create major tax issues if ignored, is the shareholder loan account.
If you have borrowed money from your corporation, repaid funds, or paid personal expenses through your business this year, it is essential to review your shareholder loan before December 31. Taking the time to review now can help you avoid unnecessary tax consequences and set you up for a smooth start to the new year.
What Is a Shareholder Loan
A shareholder loan represents any money that moves between you as a shareholder and your corporation that is not part of your salary, dividends, or reimbursed expenses. In other words, it is any transfer of funds between you and your company that is not recorded as regular income or payment.
Common examples include:
• Funds withdrawn from the corporation for personal use
• Personal expenses paid using corporate funds
• Repayments made to the corporation
• Money personally loaned to the business
In accounting terms, this balance reflects whether you owe the company or the company owes you.
Why It Matters Before Year-End
Under the Income Tax Act, any shareholder loan that you take from your corporation must be repaid within one year after the end of the corporation’s taxation year. If the loan is not repaid within that time, the Canada Revenue Agency (CRA) may consider the loan to be personal income and tax you on it.
For example, if you borrowed $25,000 from your corporation in 2025 and have not repaid it by the end of 2026, the CRA could include that $25,000 in your personal taxable income. This could result in a much higher tax bill than expected.
How to Stay Compliant
- Review your shareholder loan balance
Start by reviewing your general ledger or speaking with your bookkeeper to confirm the balance. If it shows a debit amount, meaning you owe the company, it is important to address it before the year ends. - Repay or clear the balance properly
You can repay the loan directly to the corporation or have your accountant declare a dividend to offset the balance. Each option has different tax implications, so it is best to consult with a professional at ME Consulting Inc. before deciding which approach is right for your situation. - Keep proper documentation
If you plan to carry a shareholder loan into the next year, make sure you have a written loan agreement with clear repayment terms and an interest rate. The CRA expects to see proper documentation to confirm that the loan is legitimate and not simply a way to draw funds from the business tax-free. - Avoid the repay and reborrow pattern
Repaying a shareholder loan just before year-end and then withdrawing it again shortly after is a red flag for the CRA. They may view it as an ongoing loan that is being used to avoid tax, even if you technically repaid it.
The Bottom Line
Taking the time to review and address your shareholder loan before year-end can prevent unnecessary tax problems and help you stay compliant. With careful review, proper documentation, and professional guidance, you can ensure that your finances are organized and ready for the new year.
Need Help Reviewing Your Shareholder Loan
At ME Consulting Inc., we work with Alberta business owners to ensure their shareholder loan accounts are handled properly and that their year-end planning stays on track. Our team can review your books, assess your loan balance, and guide you through the best repayment or restructuring options for your business.
Contact ME Consulting Inc. today to schedule your year-end review and take the stress out of tax season.
