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.
1994 Canadian Tax Conference
Paragraphs 15(2)(b) and 20(1)(j)
Under subsection 15(2) of the Act, a shareholder of a corporation is generally required to include the amount of any shareholder loans or indebtedness in income for the year the loan or indebtedness was received unless one of the exceptions for certain types of loans described in paragraph 15(2)(a) are met or the exception based on repayment as described in paragraph 15(2)(b) is met.
Paragraph 15(2)(b) provides that if the loan or indebtedness is repaid within one year from the end of the taxation year of the lender in which the loan was made and if the repayment is not part of a series of loans or other transactions and repayments, the loan or indebtedness is not included in the income of the borrower under subsection 15(2). If, however, an amount is included in a borrower's income under subsection 15(2), paragraph 20(1)(j) provides a deduction where a borrower has repaid all or part of a loan or indebtedness that was included in income for a preceding year under subsection 15(2). However, a deduction may not be made under paragraph 20(1)(j) where the payment is made as part of a series of loans or other transactions and repayments.
There is some uncertainty as to the Department's assessing position with regard to the application of paragraphs 15(2)(b) and 20(1)(j) in light of the Tax Court decisions in Joel Attis v. MNR 92 DTC 1128 and more recently in Uphill Holdings Ltd., et al v. MNR 93 DTC 148. These cases highlight the issue of whether dividends, salaries or bonuses paid and credited to the shareholder loan account to repay the balance on the account at the end of the previous year can be considered as part of a series of loans or other transactions and repayments for the purposes of subsection 15(2).
These court decisions support the view that bona fide repayments of shareholder loans which are the result of the declaration of dividends, salaries or bonuses should not be considered part of a series of loans or other transactions and repayments for the purposes of paragraphs 15(2)(b) and 20(1)(j).
These cases have not been appealed, and accordingly, the Department's assessing position in this area will conform to the Court's view on the operation of paragraphs 15(2)(b) and 20(1)(j). The revised assessing position will be reflected in the Income Tax Technical News and Interpretation Bulletin IT-119R3 when next revised.
Tim Bryant
November 30, 1994
942788
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