Dear Sirs:
This is in reply to your letter of December 4, 1990 asking if the provisions of subsection 80.4(1) of the Income Tax Act apply to low interest loans where retired employees are involved.
Subsection 80.4(1) refers to a situation in which "a person or partnership received a loan or otherwise incurred a debt by virtue of the office or employment...". It is the capacity in which the individual received the loan at the time it was made that determines whether subsection 80.4(1) is applicable. It is the Department's view that subsection 80.4(1) is applicable where an individual is an employee at the time the loan is granted and would remain applicable after the employment ceases. Where a retired employee receives a low interest or no interest loan from the former employer pursuant to an agreement entered into while the former was employed by the latter, the Department's position is that the loan would be received by virtue of the office or employment and subsection 80.4(1) would apply.
We trust our comments are of assistance to you.
Yours truly,
for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch