Loan Made to a Shareholder

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A loan made to a shareholder who is not an employee is a taxable benefit if the following conditions are met:

  • The debt is contracted by a person other than a corporation resident in Canada, or by a partnership none of whose members is a corporation resident in Canada.
  • The person or partnership is a shareholder of the corporation (or is connected to a shareholder of the corporation), a member of a partnership, a beneficiary of a trust or a member of a partnership that is a shareholder of the corporation.
  • The debt is contracted because the person or partnership is a shareholder of the corporation or is connected to such a shareholder, or because the person or partnership is a beneficiary of a trust or member of a partnership that is a shareholder of the corporation.

Calculating the value of the benefit

If the above-mentioned conditions are met, the value of the benefit is calculated as follows:

  • the amount of interest on each debt, calculated at the prescribed rate for the period of the year during which the debt is outstanding;

minus

  • the interest for the year paid on each debt within 30 days after the end of the year.

You have to include the value of the benefit in box O of the shareholder's RL-1 slip (see courtesy translation RL-1-T).

If a shareholder who is an employee receives a loan that is made to the person because the person is a shareholder, the value of the benefit must be calculated as for shareholders and included in box O only. However, if the loan is made to the person because the person is an employee, the value of the benefit must be calculated in the same way as for an employee who receives a loan and included in boxes A, G and L of the RL-1 slip.

If a person who is connected to a shareholder receives a loan and does not contract the debt by reason of an office or employment, the value of the benefit must be calculated as for shareholders who are not employees, and must be included in box O of the person's RL-1 slip (rather than the shareholder's RL-1 slip).

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