(b) you only must repay 5% a year over ten years, starting in the 4th year of the loan, and
(c) you show the loan in the corporation's books as a "loan receivable – shareholder",
is that a tax-free employee housing loan, or is it a taxable shareholder loan, includable in your income if you don't repay it within one year?
Answer: It's a shareholder loan that you must include in your income. (See paras. 28-31 and ITA ss. 15(2) and 15(2.4).)
" The question of whether the loan is made to an employee and not a shareholder must be decided in relation to the time at which the loan is made. There is no doubt that at the time the loan was made to the appellant, Mastco’s retained earnings were strong. Yet the amount of the loan represented a very substantial part of those retained earnings, which in turn makes it difficult to conclude that a loan of such an amount could reasonably have been made to an employee. In my opinion, the amount of the loan in these circumstances is far more consistent with the loan being one made to a shareholder.
" The terms and conditions of the loan can also be an indication of whether or not such a loan is one that is available to employees of a corporation who are not shareholders. In our fact situation, we have a loan agreement that provides for a term of 10 years with payments of not less than $50,000 a year with no interest. Although the appellant did declare interest as a taxable benefit, the repayment conditions are nonetheless very flexible. It is reasonable as well to conclude that no employee would receive such a sizeable loan without having to give his or her lender a lien or similar security on the house to be built.
" There are other factors in the evidence submitted that are indicative of the underlying intent of Mastco and the appellant that the loan at issue was to be a shareholder’s loan. The appellant was in the habit of using Mastco to pay his personal expenses, including many related to the construction of his house; an employee would not have had such a benefit. Moreover, the financial statements of Mastco showed the advances under "loan receivable – shareholder" or "advance to shareholder"; ...
" ... A minimum payment of $50,000 a year over a 10-year term with no specific rate of interest on a one-million dollar loan does not constitute a bona fide repayment arrangement."
See Mast v. The Queen, (2013 TCC Angers)