Shareholder loan (Taxation)

Question 1

Shareholder loan (Taxation)

Answer 1

• Principal amount must be added to shareholder’s income ITA 15(2)
• No imputed interest under ITA 80.4(3)
• Can be deducted under ITA 20(1)(j) when it is repaid
• Exception: If loan repaid prior to second balance sheet date of corporation, then principal amount need not be added to shareholder’s income, per ITA 15(2.6), but imputed interest under ITA 80.4(2) would apply. However, it cannot be a series of loans and payments (as per ITA 15(2.6), 20(1)(j))
• Exception: Loan advanced as an employee, rather than shareholder, to acquire residence, auto for work or shares of the company, under ITA 15(2.4), as long as at the time the loan was made, bona-fide arrangements were made for repayment of the loan within a reasonable amount of time

Reference: ITA 15, 20(1)(j), 80.4