IT-119R4 "Debts of Shareholders and Certain Persons Connected With Shareholders" 7 August 1998

27 Repayments are considered to apply first to the oldest loan or debt outstanding ("first-in, first -out basis") unless the facts clearly indicate otherwise.

28....It is a question of fact whether or not a repayment of a loan is part of a series of loans or other transactions and repayments. In most cases, when there are only a few loans or other transactions and a few repayments made during a taxation year of a lender, there is no such series. However, when only one loan or other transaction and one repayment occur in each taxation year of a lender, a series of loans or other transactions and repayments may still be in evidence. This could occur, for example, when a repayment is of a temporary nature, such as a loan that is repaid shortly before the end of the year and the same amount, or substantially the same amount is borrowed shortly after the end of the year....

29....Bona fide repayments of shareholder loans that result from, for example, the payment of dividends, salaries, or bonuses, are not part of a series of loans or other transactions and repayments.

11. Whether or not a loan made by a corporation to an individual is considered to have been received by that individual in his or her capacity as an employee or as a shareholder involves a finding of fact in each particular case. When a public corporation makes a loan to a shareholder on the same terms and conditions as to other employees who are not shareholders, the loan is normally considered to be a loan received by virtue of that individual's office or employment rather than his or her shareholdings. However, when the opportunity to borrow funds is only made available to shareholders or when the terms and conditions attached to loans to employee-shareholders are more favourable than those attached to loans to other employees, the loan will be considered to have been made to the employee-shareholder in his or her capacity as a shareholder unless the facts clearly indicate otherwise.

12. In considering whether any arrangements for repayment were bona fide, the extent to which the arrangements have been carried out by the borrower is reviewed and, if the borrower is in default, any unusual circumstances that might have hindered them from being carried out. Whether or not the period allowed for repayment is "within a reasonable time" is a question of fact. In a given situation, one of the factors considered in determining what is a reasonable time is the normal commercial practice which would prevail in a similar situation. For example, for a housing loan, normal commercial practice requires the borrower, among other things, to give the lender some security (not necessarily a mortgage) and to repay any balance on the loan should the property be sold while an amount is still owing.

No penalty if tax remitted by Feb 15/based only on net annual increase in balance

38 ....If there is no series of loans or other transactions and repayments (see ¶ 28 above), the non-resident who has received a loan in a particular taxation year cannot be deemed to have received a dividend until one year after the end of the taxation year of the lender, in order to determine if the exception under subsection 15(2.6) applies. Consequently, it is the Department's practice, in these circumstances, not to levy a penalty and not to charge interest in respect of the requirement for remittance of the tax, provided that the tax is remitted on or before the 15th day of the 13th month following the end of the taxation year of the lender in which the loan was made (if the tax is not remitted by this day, interest will start accruing as of the 16th day of the 13th month). If there is a series of loans or other transactions and repayments ... the tax is based on the net increase of the loan during the taxation year of the lender.