Loans received because of shareholdings

Loans received because of shareholdings are considered taxable benefits when of all the following conditions are met:

  • the loan is received by a person or partnership (except when the person is a corporation resident in Canada or the partnership is one in which each partner is a corporation resident in Canada)
  • the person or partnership is:
    • a shareholder of a corporation
    • connected with a shareholder of a corporation
    • a member of a partnership or beneficiary of a trust that was a shareholder of a corporation
  • the person or partnership receives a loan from, or incurs a debt to, a corporation, a related corporation, or a partnership of which that corporation or any related corporation was a member because of these shareholdings

If these conditions are met, the person or partnership (for example, a shareholder) received a benefit in the tax year that is equal to:

  • the interest on each loan and debt calculated at the prescribed interest rates for the period in the year during which it was outstanding

minus

  • the interest for the year that any party (such as the person or partnership) paid on each loan or debt in the year or no later than 30 days after the end of the year

Note

A person may be an individual, a corporation, or a trust.

Include the shareholder’s benefit under code 117, “Other income,” in the “Other information” area at the bottom of the T4A slip.

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