CRA indicates that where a s. 15(2) inclusion that was offset under s. 20(1)(ww) because it was subject to TOSI, there nonetheless can be a s. 20(1)(j) deduction when the loan is repaid

An amount, which is included in the income of an individual (X) under s. 15(2) is also subject in the individual’s hands to the tax on split income (TOSI) under s. 120.4(2) (TOSI), so that X is entitled to a deduction under s. 20(1)(ww) for the income subject to TOSI (being also equal to the s. 15(2) income inclusion).

In a subsequent taxation year, X repays the shareholder loan. CRA indicated that having claimed the s. 20(1)(ww) deduction would not preclude X from subsequently claiming the s. 20(1)(j) deduction when the loan was repaid – and indicated that this appeared to be the right policy result.

Neal Armstrong. Summary of 25 November 2021 CTF Roundtable, Q.2 under s. 20(1)(j).