The CRA Just Quietly Overhauled Shareholder Loan Rules

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And nobody's really talking about it.

If you’re an owner-manager who likes to borrow from your own company, or if you're a tax nerd who works with clients who do, well... get ready! The CRA dropped new folios (S3-F1-C1 and S3-F1-C2) on April 10, 2025, and they change how shareholder loans and interest benefits are supposed to work. The old standby guides (IT-119R4 and IT-421R2) are now officially toast.

Let’s talk about what changed, why it matters, and how not to get blindsided.


What Bucket Are You In—Shareholder or Employee?

The CRA wants to know why you got that loan. Was it because you're a shareholder, or because you're an employee? For owner-managers, this is messy. You're usually both.

The CRA now gives more detail on how they sort this out.

It’s probably an employee loan if:

  • The loan terms are the same as those for regular employees who don’t own shares
  • If you’re the only employee, you can prove that similar businesses lend to staff under similar terms

It’s probably a shareholder loan if:

  • The company only gives loans to shareholders
  • Your loan has better terms than what employees get
  • You influence the company’s decisions (aka, you’re the boss)
  • The loan is big compared to retained earnings
  • The loan is big, and no one asked for security

So, yeah. If you're pulling $300K out of your corp with no interest and no paperwork, it's probably not flying under the radar anymore.


Your Bookkeeper’s Journal Entry Won’t Save You

Both folios now flat-out say: CRA doesn’t care what your accounting software says. Journal entries don’t drive tax treatment. Substance over form wins.

They even say this in legal-speak:

“Tax consequences arise from what taxpayers have actually done and not from what they intended to do or what they might have done.”

Translation: you can’t just call it a loan on the books and hope CRA agrees. If it walks and quacks like salary or a dividend, they’ll treat it that way.

They’re clearly taking a page from SCC cases like Fairmont, Jean Coutu, and Collins Family Trust. Retroactive tax planning is out. Clean, upfront documentation is in.


Malamute: A Win for the Little Guy (But Don’t Get Cocky)

There was a Tax Court case earlier this year (See Malamute Contracting Inc. v. The King.) Family-owned company. Paid its two shareholder-employees uneven biweekly cheques that looked like salary. CRA said, “That’s payroll. You didn’t withhold tax. We’re getting out the penalty stick.”

But the court sided with Malamute. Why? Because their filings, bookkeeping, and testimony were consistent with the idea that these were shareholder draws, and not employment income.

So, yes, a win for Malamute. But I wouldn't say this is a green light. The decision worked in their facts. Yours might not. Takeaway: if you're going to treat payments as shareholder loans, they need to walk, talk, and look like shareholder loans. Paperwork is a Good Thing.


The “Series” Trap Gets Reined In

Here’s some good news. The CRA used to take a pretty aggressive view on the rule that if you repay a loan but then borrow again, it’s part of a "series of loans", which normally nukes the 15(2.6) exception and triggers an income inclusion.

Now they appear to be calming down a bit.

What seems to be the current direction is that repayments aren’t part of a “series” if:

  • The new loan is from a different source
  • It’s for a legit business purpose
  • It’s not just recycling cash to pay back the old loan

Also, if you repay a shareholder loan using a salary, dividend, or bonus that’s already owed to you, it won’t be treated as part of a series, even if you borrow again later.

This is big. It gives owner-managers more flexibility, as long as you document clearly and avoid circular cash games.


No Repayment Plan? No Exception.

If you're leaning on subsections 15(2.3), (2.4), or (2.5) to claim your loan doesn’t trigger income, you better be able to show, at the time the loan was made, how and when it was going to be repaid.

Vague promises or “we’ll figure it out later” won’t cut it anymore. (If you need help with getting something on paper, let us know - We already do this for our clients.)

Also gone is the old line that a promissory note doesn’t count as repayment. Now CRA just says “depends on the facts.” Which, isn't exactly super helpful, but at least it’s honest.


Back-to-Back Loans Still Count

The CRA reminded everyone that using intermediaries to move money around doesn’t get you off the hook.

If you're using a friendly third party to funnel money to a shareholder, CRA will likely see through it. You’ll get nailed with a 15(2) income inclusion and a deemed interest benefit under 80.4 if the rate’s too low.

So yeah. Don’t be dumb.


Filing Gotchas: 80.4 vs 15(2)

Let’s say you think 15(2.6) applies and you don’t include the loan in income... but then later find out it doesn’t apply?

CRA wants you to go back and fix it:

  • If you reported 15(2) income, but later realize you didn’t need to: Amend to remove the 15(2) income and add the 80.4 interest benefit
  • If you didn’t report 15(2) income, but should have: Amend to add the income, and remove any 80.4 benefit you claimed

Just pick the right one, based on facts.


What It All Means

The CRA is making it really clear that if you're borrowing from your corporation, you need to:

  • Know why the loan was made (employment vs shareholder.)
  • Document the crap out of it.
  • Avoid circular repayments.
  • Have a repayment plan.
  • Not assume bookkeeping entries or label-swapping will save you.

Also: don’t get too clever with series loans or back-to-back structures. Doing that will likely just annoy the CRA even more.

If you’ve been flying blind on shareholder loan strategy, now’s the time to get things cleaned up. The rules didn’t change overnight, but the CRA’s attitude did. Better to get it right on the front end than defend it two years from now when you’re already on their radar.

Usual disclaimer: This isn’t tax advice. I’m not your CPA. If you need help sorting out a shareholder loan situation, hire a pro. Or if you want me to look at it, get in touch and we’ll talk.