| 19(1) | File No. 5-8375 |
| G. Ozols | |
| (613) 957-2139 |
November 20, 1989
Dear Sir:
Re: Employee/Shareholder Loans
This is in reply to your letter of July 14, 1989 concerning housing loans made by an employer to an employee who is also a shareholder of the employer.
You wish to know whether the judgement of the Tax Court of Canada in Silden v. M.N.R. 89 DTC 75 has resulted in a change in the Department's position on the application of subsection 15(2) of the Income Tax Act (the "Act"). Subsection 15(2) of the Act generally includes in the income of a shareholder of a corporation the amount of any loan received by the shareholder form the corporation the amount of any loan received by the shareholder form the corporation. There are certain exceptions to this rule, one of them being subparagraph 15(2)(a)(ii) of the Act where the shareholder is an employee of the corporation and the purpose of the loan is to enable or assist the employee or his spouse to acquire a dwelling for his habitation. The circumstances in which this provision will be available to the shareholder are outlined in Interpretation Bulletin IT-119R3. We do not see the Silden decision as having any impact on the Department's position as set out in IT-119R3.
In addition, the Department has stated, most recently at the 1986 Canadian Tax Foundation Conference, that where a public corporation makes a bona fide loan to a shareholder qua employee rather than to a shareholder. The situation may be different for a shareholder of a private corporation rather than a public corporation. It is a question of fact in each case whether or not a shareholder/employee received a loan qua employee.
The judgement in the Silden case, however, explicitly rejected the taxpayer's argument that subsection 15(2) of the Act does not apply in respect of a loan to a person who only incidentally is a shareholder.
Nevertheless, our position has not changed and in general remains as stated earlier, each case is determined on its own facts, and the nature and terms of a loan and the circumstances by which it was made will determine whether or not it was in fact an employee loan rather than a shareholder loan.
We trust the above is of assistance to you.
Yours truly,
for DirectorBusiness and General DivisionSpecialty Rulings DirectorateLegislative and IntergovernmentalAffairs Branch