Principal Issues: Whether a loan received by the sole shareholder and only employee of a corporation will be received in the capacity as a shareholder or employee?
Position: Question of fact.
Reasons: The fact that the individual is the sole shareholder and only employee of the corporation does not mean that the loan is received in the capacity as a shareholder.
XXXXXXXXXX Randy Hewlett
613-941-7239
2005-014057
July 14, 2005
XXXXXXXXXX:
Re: Shareholder/Employee Loans - For The Purpose Of Acquiring A Dwelling
We are writing in response to your letter of July 6, 2005 on the above noted issue. You inquired whether the loan you propose to receive from a corporation of which you are the sole shareholder and only employee, will be received in your capacity as a shareholder or employee. You indicated that the loan will meet the requirements of paragraphs 15(2.4)(b) and (f) of the Income Tax Act, but you are concerned about paragraph 15(2.4)(e) which requires that the loan be received in respect of your employment and not because you are a shareholder.
Whether the loan you described will be received in your capacity as an employee or shareholder can only be determined with a complete knowledge of all the facts and circumstances surrounding your particular situation. Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of an advance income tax ruling request submitted in the manner set our in Information Circular 70-6R5, Advance Income Tax Rulings, dated May 17, 2002. We will note, however, that the fact that you are the sole shareholder and only employee of your corporation does not mean that the loan will automatically be considered to have been received in your capacity as a shareholder.
We trust our comments will be of assistance to you.
Yours truly,
Randy Hewlett
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Policy and Planning Branch