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Details

  • Service: Tax, International Corporate Tax, Global Compliance Management Services
  • Type: Regulatory update
  • Date: 10/25/2012

Canada - Tax treatment of series of shareholder loans, repayments  

October 25:  The Canada Revenue Agency (CRA) issued a technical interpretation concerning the tax treatment of a series of shareholder loans and repayments.

The CRA stated that in the phrase "a series of loans or other transactions and repayments” in subsection 15(2), a "series" occurs generally when repayment is made shortly before the corporation's year-end and then substantially the same amount is borrowed shortly thereafter in the immediately following year.


Generally, a loan that forms part of such a series would be subject to the income inclusion rule under subsection 15(2) of Canada’s tax law.


In the technical interpretation, the CRA stated that it is a question of fact whether a repayment made by the shareholder during the corporation's tax year (for example, in 2011) would be a "series" or whether the shareholder specifically directed that the repayments would be allocated on a basis other than using it against oldest indebtedness first. However, assuming that neither of these situations applies, the CRA could consider shareholder repayments made in 2011 to be applied first against a 2010 indebtedness, and therefore no income inclusion would be required under subsection 15(2).


However, the CRA cautioned that when the indebtedness is not included under subsection 15(2), the shareholder would be subject to a taxable interest benefit calculated under section 80.4(2) for the number of days that the amounts remained owing each year.


Read an October 2012 report prepared by the KPMG member firm in Canada: Shareholder Loans - Meaning of "Series of Loans and Repayments"



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