Shareholder Loans in Canada: What's the 15-Month Rule?

1. Why should you care about this rule?

Here's what we see all the time. An owner pays a personal expense from the business account. Or pulls cash for a down payment. Or covers a tax bill. They figure they'll sort it out later.

On your books, that shows up as a shareholder loan. And CRA doesn't let that balance sit there forever.

If the money's still outstanding past the deadline, subsection 15(2) of the Income Tax Act can pull the whole amount into your personal income. That's not just a bookkeeping problem. You end up with tax owing, no offsetting deduction, and a messy cleanup. None of this was intentional. It's just what happens when you're busy running a business.

2. What does subsection 15(2) actually do?

It's an anti-avoidance rule. CRA doesn't want you borrowing from your corporation when you should've paid yourself a salary or dividend. So the default treatment is harsh: if your company lends you money (or lends to someone connected to you), the unpaid amount gets added to your income. Unless an exception applies.

There are exceptions for certain employee loans — think home purchase loans or vehicle loans — but they come with their own conditions. They're not a free pass for owner-managers.

For most small business files, the real question is simple. Did money leave the corporation, land in shareholder loan, and stay there too long? If yes, CRA can assess it as income.

3. How does the 15-month rule actually work?

The rule says you have to repay the loan by the end of your corporation's next fiscal year. If your company has a December 31 year-end and you borrowed money in 2026, you'd need it repaid by December 31, 2027.

That math is where the "15 months" comes from. Borrow in January, and you've got nearly two years. Borrow in November, and you've got about 14 months.

But here's what trips people up. The clock is tied to your corporate year-end, not the date you took the money. So a draw in January and a draw in November of the same year both share the same repayment deadline. And if you're making multiple draws through the year without tracking them, you're guessing. We don't guess — we ask.

4. Wait — there's an interest rule too?

Yep. Even if you repay the loan on time, CRA can still hit you with a taxable benefit. If you had the use of corporate money at no interest (or below the prescribed rate), the difference gets added to your personal income.

So there are really two separate risks:

• The principal risk. You don't repay inside the window, and the full balance becomes personal income under 15(2).
• The benefit risk. You had corporate cash interest-free, and CRA charges you a taxable benefit — even if you repaid the loan itself.

Most owners focus on the first and forget the second. We check both. Every time.

5. Three real scenarios we see

The renovation draw. An owner takes $80,000 in March for a kitchen reno. It sits in shareholder loan all year. And the next year too. If it's still outstanding past the deadline, CRA adds the full $80,000 to their personal income. That's almost always worse than if they'd planned it as salary or dividend from the start.

The bonus repayment. An owner borrows $30,000 in July and repays it the following spring with a year-end bonus. That can fix the 15(2) issue — but only if the repayment is real. Book entries that just shuffle balances without an actual payment? CRA challenges those, especially if there's a pattern of repay-and-redraw.

The interest-only fix. An owner owes $50,000 and pays prescribed-rate interest by January 30 of the following year. That can reduce or eliminate the interest benefit piece. But it doesn't rescue a balance that's still sitting there past the repayment deadline.

6. How do you handle draws the right way?

Honestly? Don't let shareholder loan become a dumping ground. If you need money out of the corporation, decide up front whether it's salary, a dividend, or a short-term loan with a real repayment plan.

1. Pick a lane up front. Salary, dividend, or short-term loan. Every draw should be a deliberate decision, not a mystery debit.
2. Reconcile shareholder loan monthly. Treat it the way you'd treat a bank rec. Debit balances that build for months are a flag.
3. Document before year-end. Don't rely on your accountant to reclassify dozens of draws at filing time. That's how surprises happen.
4. Calculate the interest benefit. If a balance is outstanding, figure out the prescribed-rate benefit before CRA does it for you.

This is where bookkeeping really matters. Most messy shareholder loan files aren't caused by one big withdrawal. They're caused by dozens of small payments nobody cleaned up on time. A gym membership here. A personal credit card there. It adds up.

Already carrying a balance? The right move is to review the timing, check whether 15(2) has been triggered, and figure out if salary, dividend, or repayment is the cleanest fix. We run through this with corporate tax and personal tax clients all the time.