A shareholder loan shows up on a corporation's balance sheet as an amount "due from shareholder" — money the corporation has advanced to, or on behalf of, its owner that hasn't been repaid, salaried, or formally declared as a dividend.
Under subsection 15(2) of the Income Tax Act, a shareholder loan is generally not included in the shareholder's personal income only if it is repaid within one year after the end of the corporation's taxation year in which the loan was made. That exception disappears if the repayment turns out to be just one step in a repeating series of loans and repayments effectively designed to avoid the rule.
A large, growing "due from shareholder" balance tells you the owner has effectively been living on money drawn from the company that was never formally recognized as salary or a dividend anywhere. That means it doesn't appear on the personal T1 or NOA at all — and an underwriter has no clean, documented way to qualify income that was never actually reported as income.
Don't try to argue the shareholder loan balance itself is qualifying income — it isn't, and presenting it as such will not survive scrutiny. Instead, investigate why it exists: is the owner underpaying themselves relative to what the business genuinely earns? Is this a timing issue around one large draw rather than an ongoing pattern? Then look at whether the corporation's own retained earnings and T2 income support treating the underlying business profit — properly documented — as the real qualifying figure instead.
A "due to shareholder" balance — where the corporation owes the shareholder, because the owner has been lending money into the business — is the opposite signal. It can support a genuinely positive story of an owner propping up their business with personal funds, but like any unusual balance, it deserves its own explanation rather than being read as automatically good or bad.
A corporation's balance sheet shows a large and growing 'due from shareholder' balance. The owner's personal T1 shows only modest salary income. How should this be approached?
The loan balance itself was never reported as income anywhere and can't simply be added to the file — but it's a real signal that the owner may be underpaying themselves relative to what the business earns, which is worth chasing down through the corporation's actual results. Ignoring it misses a genuine clue about the file's real income; treating the balance as income directly misunderstands what it is; and an automatic decline skips the investigative step that often resolves the question cleanly.
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