The controlling shareholder and an employee of an eligible entity suspended receiving salary, for the performance of the employee’s duties, in April, May or June, 2020 for the performance of his duties because of COVID-related financial hardship. Where the corporation expenses salary to the shareholder/employee by way of journal entry with a credit (increase) to the due to shareholder loan account, is the salary considered eligible remuneration? What if the shareholder/employee is paid salary by way of a transfer of funds which are immediately returned as a capital contribution to the eligible employer?
CRA responded:
[W]here salary and wages are paid to an eligible employee and returned to the eligible employer with a corresponding increase or credit to a due to shareholder loan account or other shareholder loan account, we consider such salary or wages would not be eligible remuneration … pursuant to paragraph (c) … . Similarly, salary and wages paid but returned to the corporation by the shareholder/employee as a capital contribution or as an amount re-loaned to the corporation would not be considered eligible remuneration … .