CRA indicates that a one-time fee paid by a shareholder to his corporation for providing mortgage security for a personal loan could qualify under s. 20(1)(e)
An individual, a sole shareholder of a corporation, borrows money in order to earn business or property income. To secure his personal loan, his corporation grants a mortgage on a building it owns. The shareholder makes all principal and interest payments on his loan, and also pays his corporation a reasonable fee for the grant of the security (a “guarantee fee”).
CRA indicated that the “guarantee fee” (a label that it did not query even though, in form, there was no guarantee, only the granting of a security interest) would generally be a capital expenditure and, therefore, likely would be non-deductible unless s. 20(1)(e.1) or (e) applied. The former was inapplicable “if the guarantee fee is a one-off amount paid at the time the loan is granted for the duration of the loan.” Regarding the latter, it stated:
[A]reasonable one-time guarantee fee … paid respecting the term of the loan would generally be deductible pursuant to paragraph 20(1)(e), taking into account the application of subsection 18(9), if applicable.
Neal Armstrong. Summaries of 7 October 2022 APFF Financial Strategies and Instruments Roundtable, Q.5 under s. 20(1)(e), s. 20(1)(e.1), s. 248(1) – business, and s. 15(1).