Shareholder Loans (ITA 15(2))

Definition

ITA s.15(2) includes in the income of a shareholder (or a person connected with a shareholder) any amount of a loan or indebtedness owing to the corporation, unless a statutory exception applies. The inclusion is in the year the loan is made, at the full principal amount, as ordinary income. The two main exceptions are the s.15(2.6) "repaid within one year after the corporation's year-end" rule and a handful of bona-fide employee-purpose loans under s.15(2.4). Separately, s.80.4 imputes a taxable benefit equal to interest at the prescribed rate minus interest actually paid, as long as the loan remains outstanding.

Key rules

• s.15(2.6) exception: the loan (or the portion repaid) is not included in income if it is repaid within one year after the end of the corporation's taxation year in which the loan was made, and the repayment is not part of a series of loans and repayments.
• The s.15(2.6) window is measured from the corporate year-end, not the loan date. For a December 31 fiscal year, a loan made June 2026 must be repaid by December 31, 2027.
• If the loan is included in income under s.15(2), a deduction under s.20(1)(j) is available when the loan is later repaid, reversing the inclusion in the year of repayment.
• While the loan remains outstanding, s.80.4 imputes an interest benefit: prescribed rate applied to the average balance, minus interest actually paid by the shareholder within the year or 30 days after year-end.
• The CRA prescribed rate changes quarterly and is published on canada.ca. It has ranged widely in recent years; always confirm the current quarter's rate.
• Exceptions under s.15(2.4) cover certain employee-purpose loans (for a home purchase, for shares of the employer, or for a motor vehicle used in employment) if bona-fide arrangements for repayment exist and the loan is made qua employee, not qua shareholder.
• "Back-to-back" or series loans and repayments are specifically blocked. Repaying on December 30 and re-borrowing January 2 will not meet the exception.

Example

On March 1, 2026 a BC CCPC with a December 31 year-end lends its sole shareholder $50,000. No interest is charged.

Scenario A: Repaid November 15, 2027
  Within the s.15(2.6) window (before Dec 31, 2027)
  No inclusion under s.15(2)
  s.80.4 imputed interest benefit: prescribed rate x $50,000 x days outstanding / 365
  Assume ~6% prescribed rate for illustration:
    $50,000 x 6% x 259 days / 365 ≈ $2,128 (2026 benefit)
    Plus the 2027 portion until repayment

Scenario B: Not repaid by Dec 31, 2027
  Full $50,000 included in shareholder's 2026 income
  s.80.4 imputed interest still applies each year
  When eventually repaid, s.20(1)(j) allows a deduction in the year of repayment

Scenario B is nearly always worse than paying a dividend or salary to begin with, because the shareholder gets the worst of both worlds: full ordinary-income inclusion and ongoing imputed interest.

Common mistakes

• Measuring the one-year window from the loan date instead of the corporate year-end.
• Relying on back-to-back "repayments" that are really rollovers. CRA looks for a true change in creditor position.
• Forgetting the s.80.4 imputed interest even when the loan is validly repaid within the s.15(2.6) window.
• Mixing shareholder loan entries with owner draws in the bookkeeping, so that tracking the balance, date, and repayments becomes impossible at audit.
• Assuming s.15(2.4) exceptions apply without the required bona-fide repayment arrangement and "qua employee" test.

Related concepts

Shareholder loans sit alongside the broader s.15(1) shareholder benefit rules and are a live issue in every salary versus dividends conversation where draws during the year are not categorized. Planned cash extractions that would otherwise fail s.15(2) can sometimes be rescued by a bonus accrual or a year-end dividend, as long as documentation is complete.