CRA accepts that the benefit to a non-resident shareholder from personal use of a non-resident corporation’s Canadian cottage is reduced by an interest-free loan from the shareholder

A non-resident corporation owned by a non-resident individual purchases a Canadian vacation home that is available for use by that individual and family members. After noting that the benefit from rent-free use of the property would generate Part XIII tax under ss. 15(1), 15(1.4)(c) and 214(3)(a), CRA indicated that, where the fair market rent did not provide a reasonable return on the value of the property, the amount of the benefit was to be determined using the imputed rent approach – which in general entailed multiplying a normal rate of return for the non-resident corporation by the greater of the cost and fair market value of the property, and adding operating costs other than interest paid on liabilities connected with the property.

CRA accepted (more or less following Youngman) that an interest-free loan from the shareholder to fund the property’s acquisition may be deducted from the amount on which the rate of return was applied.

Neal Armstrong. Summary of 20 June 2023 STEP Roundtable, Q.10 under s. 15(1).