| 24(1) | 5-901707 |
| D.S. Delorey | |
| (613) 957-3495 |
Attention: 19(1)
October 4, 1990
Dear Sirs:
This is in reply to your letter of July 19, 1990 concerning subsection 15(2) of the Income Tax Act (the "Act").
In particular, you ask if subsection 15(2) of the Act would apply where the loan is received in the circumstances described in your letter by a person who is both an employee and a shareholder of the corporation.
The Department does not provide definitive replies to the type of factual situation described in your letter without first having had the opportunity of reviewing all the facts and related documentation. Such a review would be conducted by the relevant district taxation office. The following comments are of a general nature only.
Where a loan is involved, the position stated at the 1986 Canadian Tax Foundation Conference Round Table remains that of the Department. This position is as follows:
"Where a public corporation makes a bona fide loan to a shareholder qua employee rather than qua shareholder, on the same conditions as to other employees who are not shareholders, it is Revenue Canada's practice to treat it as a loan to an employee rather than to a shareholder. The situation may be different for a shareholder of a private corporation than of a public corporation".
Subsection 15(2) of the Act applies only where, at the time of the transaction, a shareholder/employee receives the loan or incurs the indebtedness in his capacity as a shareholder. As stated in paragraph 10 of Interpretation Bulletin IT-421R, this is a question of fact. This determination of fact can be made only after the loan has been received, or the indebtedness incurred, and a review is made of the nature and terms of the loan or indebtedness and the circumstances under which it was made or incurred. As stated above, such a review would be the responsibility of the relevant district taxation office. If it is determined that the loan was made to (or the indebtedness was incurred by) the individual in his capacity as an employee, subsection 15(2) of the Act will not apply thereto, notwithstanding that the individual may also have been a shareholder at the time the loan was made (or the indebtedness incurred).
We trust our comments are of assistance.
Yours truly,
for DirectorFinancial Industries DivisionRulings Directorate