A taxable benefit will not arise where a person receives loan or incurs a debt because of an office, employment, or shareholding when either of the following occurs:

  • The interest rate on the loan or debt equals, or is more than, the rate that would have beenagreed upon in an arm's length transaction at the time the loan or debt arose if the creditor's ordinary business included the lending of money. This exception does not apply if someone other than the borrower pays any part of the interest from the loan or debt
  • You include all or part of the loan or debt(such as, a loan or debt forgiven in whole or in part) in the income of a person or partnership. Where only part of the loan or debt has been included in income, an interest benefit must still be calculated for the portion of the loan or debt that remains outstanding


Arm's length refers generally to persons that are not related. For more information, see Income Tax Folio S1-F5-C1, Related Persons and Dealing at Arm's Length.

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