How to Record Shareholder Dividends in QBO
If you own a small business corporation in Canada, you’ve probably wondered: What’s the best way to pay yourself? The answer, in most cases, is either via salary (as an employee) or dividends (as a shareholder) or in limited cases, as a subcontractor with management fees.
I have a number of resources that delve into the best method of owner compensation. In this tutorial, however, I’m simply going to briefly review dividends and then show you how to record dividends in QuickBooks Online (QBO).
Note that this method also applies to most accounting software.
What Are Dividends?
Dividends, by definition, are payments to shareholders of a corporation from its after-tax profits.
Unlike salaries:
Dividends are not a deductible expense and therefore do not appear on the profit and loss statement.
They are recorded in the equity section of the balance sheet.
Declaring dividends reduces equity since funds are being withdrawn from the corporation.
Important CRA Rule: It should be noted that CRA is very strict with respect to shareholder withdrawals . They require that any funds withdrawn from a corporation by shareholders must be repaid within one fiscal year or declared as salary/dividends. Without the rule you could borrow money from your corporation indefinitely without paying personal tax.
What Accounts Do You Need to Record Dividends?
Shareholder Loan Account
In practice, withdrawals should be tracked through a Shareholder Loan account. This a great way to keep a record of all the amounts lent to and borrowed from the corporation by the shareholder. You would include transactions like:
Money you borrow from the corporation.
Expenses that you personally pay on behalf of the corporation.
Home office expenses that you might pay for personally
Occasional personal transactions that might happen through your business bank account or business credit card
At year-end, you would look at the balance in the shareholder account and decide how much of it should be cleared by declaring dividends.
Dividends Paid Account
This is the second account you would set up as part of Equity to reflect dividends declared during the year.
How To Set Up Accounts in QuickBooks Online
To set up new accounts, Go to Chart of Accounts in QBO and then select New account. You will then add the following accounts:
1. Shareholder Loan Account
Name: Shareholder Loan.
Account type: Current Asset (since you owe money to the corporation, it is technically a receivable).
Detail type: Loans to Officers.
Tax code: Out of Scope (since GST/HST are essentially irrelevant or not applicable).
2. Dividends Account
Account type: Equity.
Detail Type: Owner’s Equity.
Tax code: Out of Scope.
How to Record Withdrawals
Whenever you transfer funds to yourself, inadvertently use business funds for personal expenses or have other transactions that relate to personal borrowings or lending to the corporation, you would allocate the transaction to Shareholder Loan.
Example:
In the banking download, select the transaction that relates to the shareholder loan:
Transaction type: Expense/Transfer.
Category: Shareholder Loan.
Tax code: Out of Scope.
This ensures all shareholder-related transactions are tracked in one place.
How to Record Dividends With a Journal Entry
At year-end, or when you officially declare dividends, transfer the shareholder loan balance to dividends.
For example, let’s say your year end is August 31, 2025:
Journal Entry Example (Aug 31, 2025):
Credit: Shareholder Loan (to clear balance for the amount of dividends that you declare).
Debit: Dividends Paid (reduces equity).
Description: “To declare dividends for 2025.”
Once saved, the shareholder loan balance is adjusted by the amount of dividends declared, and dividends appear under equity on the balance sheet.
Note: Dividends declared do not have to agree to the amount in the shareholder loan account. You can declare more and pay yourself the difference at a later date OR you can declare less as long as you ensure that the balance that you owe to the corporation is included in the dividend amount in the following year. If you are not clear on this, I recommend speaking to your accountant.
Filing the T5 Slip
After recording the dividend in QuickBooks, the next step is to prepare and submit T5 Dividend Slips to CRA. This ensures dividends are reported as income on your personal tax return.
Final Thoughts
Recording dividends in your accounting software is relatively straightforward. By following these steps, you can:
Track withdrawals properly through the shareholder loan account.
Declare dividends with a simple journal entry.
Stay compliant with CRA by reporting dividends on a T5 slip.
Looking for guidance on owner compensation and dividends?
📝 Download your Free Dividend Filing Checklist A checklist for those of you who want to prepare your own T5 dividend declarations. Download Now
📘 Read the Book Small Business and Your Dividends is a practical guide that walks you through owner compensation strategies including a deep dive into salary vs dividends, tax considerations and step by step instructions on how to file your T5 dividend slips. Learn More.
💬 Book a Consultation Need personalized advice for your small business corporation? Schedule a one-on-one session to review your situation and determine the best compensation strategy. Learn More
