CRA confirms that it generally does not consider a benefit to be conferred as a result of a bona fide interest-free intercorporate loan

Regarding whether an interest-free loan between two corporations owned by different shareholders gives rise to a taxable benefit under s. 15(1) or 246(1), CRA first stated:

[S]ubsection 15(1) could apply to the extent that it is established that a benefit is conferred by a particular corporation (“Aco”) on, for example, an individual who does not deal at arm's length with, or is affiliated with, a shareholder of Aco or its contemplated shareholder. That said, our Directorate does not generally consider that a benefit is conferred under subsection 15(1) in the context of a bona fide inter-corporate loan made in the ordinary course of the corporations' business. … Subsection 15(1) could apply, for example, if at the time the loan is made by Aco, the other corporation (“Bco”) is unable to repay the loan and/or provide reasonable security, with the result that the value of Aco would be impaired [see Vine Estate].

Turning to s. 246(1), CRA stated:

[T]o the extent that it were determined that the shareholder of Bco and/or Bco would not have an interest in Aco (and, among other things, that the shareholder of Bco and/or Bco would not be shareholders or contemplated shareholders of Aco), it would appear that the last condition for the application of subsection 246(1) [regarding income inclusion if a direct payment] would not be satisfied. On that basis, subsection 246(1) would be inapplicable … .

CRA also indicated, if the loan was not bona fide, the applicability of s. 56(2) should also be considered.

Neal Armstrong. Summaries of 10 October 2024 APFF Financial Strategies & Instruments Roundtable, Q.1 under s. 15(1) and s. 246(1).