CRA issues a new Folio on the shareholder loan rules

CRA has issued a new Folio on the shareholder loan rules in s. 15(2) et seq. A few of the points covered include:

• Although a loan made for the purpose of refinancing an existing indebtedness that was previously incurred by an employee to acquire a dwelling will generally not meet the requirement under s. 15(2.4)(b) of having been made to enable or assist the acquisition of the dwelling, there is an exception for where the lender made a commitment to an individual on or before the individual's acquisition of the dwelling to provide permanent financing and in the interim, the individual used interim financing, such as construction financing, to construct or otherwise acquire the building.
• Regarding the requirement for bona fide repayment arrangements in s. 15(2.4)(f), at the time the loan is made, the arrangements for repayment must be such that it is possible to determine, with some certainty, the period within which the loan will be repaid.
• However, when trade debts are not paid according to the creditor's normal payment terms but they are settled within 12 months of being incurred, bona fide arrangements are considered to have been made at the time the debt arose for purposes of s. 15(2.3).
• CRA has carried forward most or all of its positions regarding the s. 15(2.6) rule including regarding when there is series of loans or other transactions and repayments, for instance that:
  • repayments are applied on a first-in, first-out basis (i.e., to the oldest loan first) when a shareholder has more than one loan outstanding at the time of repayment, unless the facts clearly indicate otherwise;
  • repayments can be made by applying dividend, salary, or bonus payments against an outstanding loan; and
  • a repayment may be considered to have been made as part of a series of loans or other transactions and repayments where the proceeds of a new loan are used to repay an existing shareholder loan.
• CRA has also carried forward its generous policies on the deferred timing for the recognition of a Part XIII remittance obligation on a benefit subject to such tax under s. 214(3)(a).
• Furthermore, if a PLOI election is available in respect of a loan but has not yet been filed, the CRA will assess Part XIII withholding tax only after the time period described in s. 15(2.6) has elapsed.
• In a situation where a loan amount that is owed by a non-resident borrower has been assigned by the original lender to a new lender and the borrower subsequently repays the loan to the new lender, the borrower may still be entitled to a refund of the Part XIII tax previously assessed.

Neal Armstrong. Summaries of Income Tax Folio S3-F1-C1, Shareholder Loans and Debts, April 10, 2025 under s. 15(2), s. 15(2.17), s. 15(2.3), s. 15(2.4)(b), s. 15(2.4)(c), s. 15(2.4)(a), s. 15(2.4)(f), s. 15(2.4)(e), s. 15(2.6), s. 20(1)(j) and s. 214(3)(a).