Chapter 15 Flashcards
20(1)(c)
Subdivision B deduction for interest paid to earn income from business or property
15(2)
15(2) the full amount of loan principal received by a shareholder must be included in income; when the loan is repaid, it can be deducted under 20(1)(j) in Subdivision B
15(2.2)
subsection 15(2) does not apply to indebtedness between non-resident persons
15(2.3)
subsection 15(2) does not apply to a debt that arose in the ordinary course of business where, at the time the loan was made, bona fide arrangements were made for repayment of the debt or loan within a reasonable time
15(2.4)
subsection 15(2) does not apply to a loan made
a) For an employee of the lender who is not a specified employee (does not own 10% or more of the shares outstanding, see 248(1) “specified employee” and 248(1) “specified shareholder”)
b) Where the individual employee or his/her spouse acquires the loan to enable or assist the individual to acquire a dwelling for the individual’s habitation
c) To enable the employee of the lender to buy previously unissued fully paid shares of the capital stock of the lender corporation, to be held by the employee for the employee’s own benefit
d) Where the loan is to an employee for the purchase of a vehicle which will be used in the performance of the duties of employment
where
e) The loan was given because of the employee’s employment and not his shares
f) AND where arrangements were made for repayment within a reasonable time
15(2.6)
subsection 15(2) does not apply to a loan or an indebtedness repaid within one year after the end of the taxation year of the lender or creditor in which the loan was made or the indebtedness arose, where it is established that the repayment was not part of a series of loans or other transactions and repayments
80.4(2)
If a taxpayer is exempt from including the loan by virtue of 15(2.2) through (2.6), then interest must be paid on the loan at market rates in order to avoid a deemed interest benefit (calculated in the same manner as we did for employee loans)
* If an interest benefit is calculated and is required to be included in income because the loan itself is exempt from being included, the interest benefit could be included in either subdivision A or subdivision B income depending on the reason for the exemption.
If loan is exempt due to 15(2.4), calculated benefit is included in 6(9), subdivision A.
If loan is exempt due to 15(2.2), (2.3) or (2.6), calculated benefit is included in 15(9), subdivision B.
80.4(3)(b)
If a taxpayer is required to include the full loan in income under 15(2), there is no need to include a deemed interest benefit
80.5
the employee may deduct deemed interest as well as paid interest if the loan is used to generate income, which is a Subdivision B expense on business income
80.4(1)
where employees receive loans at interest rates less than the prescribed rates, a benefit has been received;
see Reg. 4301c for prescribed rates80.4(1)
