Mast - Tax Court finds that being required to repay at least 50% of the loan principal over the 10-year term, with the balance on maturity, did not represent bona fide repayment arrangements

S. 15(2.4) excludes various types of loans made to employees from the shareholder loan rule in s. 15(2).  However, s. 15(2.4)(e) provides that this exemption does not apply if the loan was not received because of the employee's (or a spouse's) employment.

In finding that a $1 million interest-free  loan received by the sole shareholder and principal employee of a corporation was received by him qua shareholder rather than employee, Angers J adopted  a requirement in 2011-0406271E5 (similar to IT-119R4, para. 11) that the taxpayer establish that a loan might be made on similar terms to a non-shareholding employee.  This was not established here as, among other things, it was an unsecured loan representing a substantial portion of the corporation's retained earnings.  The reasons do not indicate any appreciation for the notion that a corporation may make a loan to an individual who is its critical and key employee on very favourable terms as an employment incentive.

There is a disturbing finding that there were no bona fide repayment arrangements as required by s. 15(2.4)(f) notwithstanding that the taxpayer was required to pay back a minimum of $50,000 of principal a year (i.e., faster amortization than most housing loans) and the term was 10 years.  Given the similarity of s. 15(2.4)(f) to other provisions, this has broader implications

Neal Armstrong.  Summary of Mast v. The Queen, 2013 TCC 309 under s. 15(2.4).