Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
Principal Issues: Whether a shareholder loan has to be included in income.
Position: Yes, unless one of the exceptions in subsection 15(2.2) to (2.6) applies.
Reasons: Rules in subsection 15(2) of the Act.
XXXXXXXXXX J. Gibbons, CGA
2001-007086
March 20, 2001
Dear XXXXXXXXXX:
We are replying to your letter, which we received February 19, 2001, concerning the income tax treatment of a loan received from a corporation of which you are a shareholder. The loan will be used by you to purchase rental properties or to refinance existing investment properties.
As requested, we have considered the situation outlined in your letter and have provided some comments below. However, we cannot confirm the tax implications of particular transactions unless the transactions are proposed and are the subject matter of an advance ruling request submitted in the manner set out in Information Circular 70-6R4. Thus, our comments are of a general nature only.
It is your understanding from reading IT-119R4, "Debts of Shareholders and Certain Persons Connected with Shareholder," that the loan from your corporation will have to be included in income in the year you borrow it; however, you feel that this rule is unfair. In this regard, you stated that the corporation may have GIC's in the bank earning 4%, and thus it makes good business sense for the corporation to loan you money at 6%, and, at the same time, it is beneficial for you if you borrow from the corporation at 6% instead of from a bank at 8%. However, you are of the view that, as a result of the requirement to include the shareholder loan in income, you will be forced to borrow money from the bank.
The requirement that individuals must include in income loans from corporations of which they are shareholders is found in subsection 15(2) of the Income Tax Act (the "Act"). Any changes to the rules relating to this provision would require an amendment to the Act and a change in tax policy, which are the responsibility of the Department of Finance. Accordingly, your concerns should be addressed to that Department. You may contact them by writing the Tax Policy Branch, Department of Finance, L'Esplanade Laurier, 140 O'Connor Street, Ottawa, Ontario, K1A 0G5.
We trust that these comments will be of assistance.
Yours truly,
John Oulton, CA
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
??
- 2 -
All rights reserved. Permission is granted to electronically copy and to print in hard copy for internal use only. No part of this information may be reproduced, modified, transmitted or redistributed in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, or stored in a retrieval system for any purpose other than noted above (including sales), without prior written permission of Canada Revenue Agency, Ottawa, Ontario K1A 0L5
© Her Majesty the Queen in Right of Canada, 2001
Tous droits réservés. Il est permis de copier sous forme électronique ou d'imprimer pour un usage interne seulement. Toutefois, il est interdit de reproduire, de modifier, de transmettre ou de redistributer de l'information, sous quelque forme ou par quelque moyen que ce soit, de facon électronique, méchanique, photocopies ou autre, ou par stockage dans des systèmes d'extraction ou pour tout usage autre que ceux susmentionnés (incluant pour fin commerciale), sans l'autorisation écrite préalable de l'Agence du revenu du Canada, Ottawa, Ontario K1A 0L5.
© Sa Majesté la Reine du Chef du Canada, 2001
Email this Content