CRA Shareholder Loan Audits: Section 15(2) Assessments, Personal Benefit Reassessments, and Corporate Enforcement — A Montreal CPA Firm Guide

Shareholder loan audits are one of the most common and financially damaging CRA reviews for small businesses, incorporated contractors, real estate investors, and family-owned corporations.
When CRA audits corporate accounts and sees shareholder withdrawals, personal expenses paid by the corporation, or negative shareholder loan balances, they may reassess under Section 15(2) of the Income Tax Act, treating these amounts as taxable income to the shareholder.

A shareholder loan issue can trigger:
• personal tax reassessments
• denied corporate deductions
• GST/QST corrections
• penalties and interest
• director liability (if trust funds involved)
• CRA collections enforcement (freezes, garnishments, liens)

This guide explains how shareholder loans work, why CRA audits them, and how Mackisen protects clients during these high-risk reassessments.

Legal and Regulatory Framework

Under Section 15(2) of the Income Tax Act, if a shareholder borrows money from their corporation and does not repay it within the fiscal year or the following year, the amount becomes taxable as income.
CRA also examines:
• Section 15(1): shareholder benefits
• Section 15(4): loans to family members
• Section 80.4: interest benefit calculations
• corporate deductibility of related expenses
• GST/QST on shareholder-related expenses

Corporations must maintain:
• accurate shareholder loan accounts
• proper bookkeeping records
• clear documentation for loans
• written repayment arrangements

CRA may reassess both the corporation and the individual shareholder.

Key Court Decisions

Courts consistently uphold CRA’s authority regarding shareholder loans. Key principles include:
• personal expenses paid by the corporation are taxable benefits
• undocumented loans are treated as income
• corporate credit card use for personal expenses creates shareholder benefit
• repayment plans must be documented
• loans must be repaid within the required period
• CRA can reassess for multiple years
• directors must maintain accurate shareholder loan accounts

Courts expect strong documentation—not verbal explanations.

Why CRA Targets Shareholder Loans

CRA reviews shareholder loan accounts when:
• corporate bank accounts contain personal spending
• shareholder loan balances remain negative
• withdrawals exceed declared salary or dividends
• credit cards show personal purchases
• the corporation pays for travel, meals, or rent not related to business
• bookkeeping systems are inconsistent
• dividends are not recorded properly
• GST/QST was claimed on personal items
• the corporation has little salary or declared dividends
• the owner treats the corporation as a personal account

Quebec corporations face more scrutiny due to combined CRA–RQ data sharing.

How CRA Audits Shareholder Loans (Deep Expansion)

1. Review of Shareholder Loan Account

CRA checks:
• beginning and ending balances
• whether loans were repaid
• whether formal agreements exist
• whether interest was charged
• withdrawals not supported by payroll or dividends
• personal expenses coded as business expenses

Negative balances signal high risk.

2. Corporate Bank Account Review

CRA examines:
• cash withdrawals
• ATM transactions
• transfers to shareholders
• payments of personal expenses
• purchases lacking business purpose
• undocumented travel or meals

Personal spending via corporate accounts is treated as income.

3. Corporate Credit Card Review

CRA looks for:
• clothing
• groceries
• travel
• electronics
• family expenses
• subscriptions
• personal services

Personal charges are deemed shareholder benefits.

4. GST/QST Audit on Expenses

CRA denies GST/QST on:
• personal items
• undocumented expenses
• mixed-use assets without allocation

This increases reassessment amounts.

5. Reassessment Under Section 15(2)

CRA adds to shareholder income:
• negative shareholder loan balances
• personal expenses paid by the corporation
• undocumented withdrawals
• loans not repaid on time

The reassessed amount is fully taxable.

6. Corporate Reassessment

CRA may also:
• deny corporate deductions
• add penalties
• apply interest
• reassess multiple years

This creates a double-impact audit.

7. Collections Enforcement

Once reassessed, CRA may enforce against:
• the corporation
• the shareholder
• both

Enforcement includes:
• wage garnishments
• refund seizures
• bank freezes
• receivable seizures
• liens

Personal and corporate finances are both at risk.

Immediate Financial Risks

Shareholder loan audits can create:
• large tax bills for shareholders
• denied corporate deductions
• GST/QST reassessments
• penalties for unreported benefits
• double taxation (corporation + shareholder)
• interest compounding daily
• CRA enforcement
• blocked refinancing
• director liability exposure
• payroll trust fund complications

Improper shareholder loan management is one of the top reasons for corporate audits.

Mackisen Strategy

Shareholder loan audits require precise financial reconstruction and legal strategy. Mackisen uses a multi-step defence model.

Step 1 — Corporate File Reconstruction

We rebuild:
• shareholder loan accounts
• bookkeeping entries
• dividend and salary schedules
• credit card receipts
• loan documents
• payment records
• GST/QST claims

This creates a defensible financial picture.

Step 2 — Reclassification and Corrections

We determine whether:
• withdrawals should be reclassified as salary
• dividends should be issued retroactively
• expenses can be substantiated
• loans should be formalized
• repayments can be documented
• GST/QST claims should be corrected

This reduces the reassessment amount.

Step 3 — Prepare a Full Audit Defence Package

We prepare:
• corrected shareholder loan ledger
• supporting contracts
• repayment plans
• reconciliation schedules
• annotated bank statements
• GST/QST proof
• corporate and personal calculations

This forces CRA to reconsider the audit results.

Step 4 — File Notices of Objection

We challenge CRA’s reassessment with:
• legal arguments
• updated records
• shareholder resolution documents
• case law
• technical references

Many Section 15(2) assessments are reversible with proper documentation.

Step 5 — Stop Enforcement

We negotiate:
• instalment plans
• freeze lifts
• garnishment pauses
• enforcement holds

This protects both personal and corporate finances.

Step 6 — Long-Term Compliance

We implement:
• monthly shareholder loan reviews
• proper dividend vs salary split
• GST/QST compliance
• corporate credit card policies
• CRA communication procedures

This prevents future shareholder loan issues.

Real Client Experience

A Montreal contractor used corporate funds for personal spending without documenting repayment. CRA assessed $62,000 as shareholder benefits. Mackisen reconstructed the ledger, reclassified part of the amount as salary and dividends, and reduced the assessment by more than 70 percent.

Another client, an e-commerce corporation, had a negative shareholder loan of $91,000. Mackisen rebuilt the corporate records, proved many transfers were reimbursements, and reversed the majority of the reassessed income.

Common Questions

• Can CRA audit my personal accounts during a corporate audit? Yes.
• What happens if my shareholder loan is negative? It may be taxable under 15(2).
• Can CRA deny GST/QST on personal expenses? Yes.
• Can shareholder loan income be reversed? Often, yes.
• Can CRA reassess multiple years? Yes.
• Can CRA freeze my personal or corporate accounts after 15(2)? Yes.
• Is it legal to borrow from my corporation? Yes, with proper documentation.
• Can CRA treat undocumented withdrawals as income? Yes.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses stay compliant while recovering the taxes they’re entitled to. Whether you’re filing your first GST/QST return or optimizing multi-year refunds, our expert team ensures precision, transparency, and protection from audit risk.