Loans received because of employment

An employee receives a taxable benefit if you give him or her a loan because of an office or employment or intended office or employment. We consider a loan received because of employment if it is reasonable to conclude that the loan would not have been received, or the conditions of the loan would have been different, had there been no employment or intended employment.

The loan can be received by the employee or by another person. A loan can include any other indebtedness such as the unpaid purchase price of goods or services, or an overpayment of salary that your employee repays you over a period of time.

The taxable benefit the employee receives in the tax year is the total of the following amounts:

  1. the interest on each loan and debt calculated at the prescribed interest rates for the periods in the year during which it was outstanding; and
     
  2. the interest on the loan or debt that was paid or payable for the year by you, the employer (for this purpose, an employer is a person or partnership that employed or intended to employ the individual and also includes a person related to the person or partnership);

    minus the total of the following amounts:
     
  3. the interest for the year that any person or partnership paid on each loan or debt no later than 30 days after the end of the year; and
     
  4. any part of the amount in 2) that the employee pays back to the employer no later than 30 days after the end of the year.

Note

Sometimes these rules do not apply. For information, see Exceptions.

If the employee receives a loan or incurs a debt because of employment, report the benefit in box 14, “Employment income,” and in the “Other information” area, report the interest benefit under code 36. Report any forgiven loan principal amounts under code 40.

For information about similar taxable benefits resulting from loans received because of services performed by a corporation that carries on a personal services business, see Interpretation Bulletin IT 421, Benefits to individuals, corporations and shareholders from loans or debt.

Example of calculating the taxable benefit loan received because of employment.

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