Subsection 15(2) of the Income Tax Act generally requires a shareholder who receives a loan from the corporation to include the loan amount in income, on the basis that an open-ended shareholder loan can function as a disguised distribution of corporate funds. The inclusion applies to loans to a shareholder or to a person connected with a shareholder, subject to exceptions.
An important exception in subsection 15(2.6) excludes a loan that is repaid within one year after the end of the corporation's taxation year in which it was made, provided the repayment is not part of a series of loans and repayments. Certain bona fide employee loans are also excluded. Where a loan stays outstanding and is later repaid, a deduction may be available in the year of repayment, and the imputed-interest rules in section 80.4 can apply to interest-free or low-interest balances.