Study Notes: Employee Loans Flashcards
1
Q
Loan to purchases previously unissued fully paid shares from a corporation
A
- The full amount of a loan to a shareholder of a corporation by that corporation must be included in the shareholder’s income (15(2) except where (par. 15(2.4)(c)
- loan made in capacity as an employee
- bona fide arrangements are made for repayment within a reasonable time (ie. 5 years)
- Interest benefit equal to amount of loan x prescribed interest rate (varies by quarter) minus interest paid.
- Interest on loan to purchase shares which have potential to earn dividend income qualify for an interest expense deduction equal to the taxable benefit.
2
Q
Loan to purchase a house
A
- The full amount of the loan is exempt from inclusion as income if it qualifies as a “home relocation loan”.
- A home relocation loan provides a deduction equal to the interest benefit on up to $25,000 of the principal of the loan. (ie. the benefit is on the entire principal but the deduction is calculated on only up to $25,000 of the the principal.)
- In calculating the interest benefit on a home relocation loan, the rate used cannot be greater thant he prescribed rate at the time the loan was made. (A new loan is deemed to be made every five years on the fifth anniversary date of the original loan>)