7 October 1997 External T.I. 9723955 - HOME PURCHASE LOANS

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 shareholder/employee receives a home purchase loan by virtue of employment or shareholdings

Position:

Question of fact. General guidelines provided.

Under proposed subsection 15(2.4), a home purchase loan made to an employee-shareholder will be included in income unless it was received because of the employee's employment.

If the individual received the loan by virtue of employment, then the benefit calculated under subsection 80.4(1) and the provisions of subsection 80.4(4) become applicable.

Subsection 80.4(4), which limits the prescribed rate to be used for a home purchase loan, only applies in respect of a benefit determined under 80.4(1).If a loan is received by virtue of shareholdings, it would be subject to the provisions of subsection 80.4(2) assuming the amount of loan is not included in the shareholders income under subsection 15(2).

Reasons:

Based on the law. These positions are consistent with the comments in previous correspondence including file 950974

XXXXXXXXXX 972395

Attention: XXXXXXXXXX

October 8, 1997

Dear Sirs:

Re: Employee housing loans

This is in reply to your letter of August 26, 1997 wherein you requested our comment with respect to employee housing loans issued in a particular series of proposed transactions.

As noted in Information Circular 70-6R3 issued in December 1996, we do not issue opinions in respect of proposed transactions other than as a reply to an advance income tax ruling request. Consequently, we will only offer the following general comments.

We note that the proposed amendments to subsection 15(2) of the Income Tax Act (the "Act") are intended to clarify the rules that apply where loans are made to taxpayers who are both shareholders and employees of the corporation. New paragraph 15(2.4)(e) will require that the loan be made to an employee because of the employee's employment and not as a result of the employee's shareholdings in order for the individual to qualify for the exceptions therein.

Whether or not a loan made by a corporation to an individual could be considered to be received by the individual in his capacity as an employee or as a shareholder involves a finding of fact in each particular case. The Department takes the position that where a public corporation makes a loan to a shareholder in his capacity as an employee rather than as a shareholder, on the same terms and conditions as to other employees who are not shareholders, the loan would be considered to be a loan received by virtue of one's office or employment rather than one's shareholdings. However, the situation could be different where the individuals are shareholders in a private corporation. As a further comment, we note that where a particular benefit is available only to shareholders, there is a presumption that the benefit is made to the individual in his capacity as a shareholder. If the individual is a shareholder and employee of a company, and a review of all the facts of the case indicate that the individual did indeed receive the loan in question by virtue of his employment, then it is the Department's position that the interest benefit would be calculated in accordance with subsection 80.4(1) of the Act. The provisions contained in subsections 80.4(4), (6) and (7) of the Act may then be applicable.

We trust our comments will be of assistance to you.

Yours truly,

for Director
Financial Industries Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch