Chapter 3: Loans to Employees Flashcards
What is the general rule under ITA 6(9) regarding employee loans?
If an employer makes a loan to an employee with either no interest or a below-market interest rate, the employee has received an economic advantage, which is considered an employment benefit.
The benefit is included in employment income using a prescribed interest rate under ITA 6(9).
What happens if an employer forgives a loan made to an employee?
If an employer forgives a loan made to an employee, the forgiven amount is included in the employee’s income as an employment benefit under ITA 6(9).
How is the employment benefit from a loan calculated under ITA 6(9)?
The employment benefit is calculated by applying the prescribed interest rate to the amount of the loan for the period it was outstanding, then subtracting any interest the employee paid on the loan during the year or within 30 days of the end of the year.
What is the tax treatment of loans provided to shareholders who are also employees?
If a loan is provided to an employee who is also a shareholder, it may be treated as a shareholder benefit instead of an employment benefit under ITA 80.4(2).
The rules for shareholder benefits apply differently than for employment benefits.
Can an employee deduct interest paid on a loan used to purchase investments or a vehicle for employment purposes?
Yes, under ITA 80.5, if the loan is used to purchase investments or a vehicle for employment purposes, the interest on the loan can be deducted against the investment income or employment income earned from the purchased asset.
How is the interest rate for a home loan to an employee capped under ITA 80.4(4)?
The interest rate for a home loan provided to an employee is capped for five years after the loan is made.
The prescribed interest rate at the time of the loan is locked in, and the benefit in subsequent years is based on the lesser of the locked-in rate or the prescribed rate at that time.
