Shareholder Benefits: Can a Loan to the Corporation Offset Them?
A December 17, 2025 Court of Quebec case examined approximately $1.6 million in personal expenses paid by a corporation on behalf of its shareholder between 2014 and 2017.
The shareholder had also advanced approximately $1.5 million in loans to the corporation.
He argued that the shareholder benefits should effectively be offset against the loans.
Taxpayer Loses
The personal expenses paid by the corporation included:
- Travel
- Meals
- Entertainment
- Retail purchases
- Construction costs
The court acknowledged that shareholder benefits may sometimes be offset against a shareholder loan account.
However, there must be clear evidence that the parties intended the loan balance to reimburse or offset the personal benefits at the time those benefits arose.
In this case, there were no journal entries, written agreements or other objective documentation demonstrating such an intention.
The taxpayer had also denied that the expenses were personal until several years later, further weakening the argument that repayment had been intended at the time.
The court determined that the loans had been advanced to finance operations and growth, rather than to repay personal expenditures.
Gross Negligence Penalties
The court permitted reassessment beyond the normal reassessment period for certain years and upheld gross negligence penalties totalling more than $200,000.
The court considered several factors, including:
- The repeated nature of the omissions.
- The amount involved.
- The taxpayer's business experience.
- The lack of voluntary disclosure.
- The fact that professional accounting support was available.
The omitted shareholder benefits exceeded 400% of the income originally reported.
Action: Personal expenses paid through a corporation should be documented and properly accounted for on an ongoing basis.