An amount, which is included in the income of an individual (X) under s. 15(2) is also subject in the individual’s hands to the tax on split income (TOSI) under s. 120.4(2) (TOSI), so that X is entitled to a deduction under s. 20(1)(ww) for the income subject to TOSI (being also equal to the s. 15(2) income inclusion).
In a subsequent taxation year, X repays the shareholder loan. Does having claimed the s. 20(1)(ww) deduction preclude X from subsequently claiming the s. 20(1)(j) deduction when the loan is repaid? S. 20(1)(j) refers inter alia to “such part of any loan or indebtedness repaid by the taxpayer in the year as was by virtue of subsection 15(2) included in computing the taxpayer’s income for a preceding taxation year (except to the extent that the amount of the loan or indebtedness was deductible from the taxpayer’s income for the purpose of computing the taxpayer’s taxable income for that preceding taxation year) … .”
CRA noted in response that s. 20(1)(ww) provides a deduction in computing income, whereas the bracketed phrase contained in 20(1)(j) only applies to the deductions in computing taxable income. Consequently, X having claimed the s. 20(1)(ww) deduction should not preclude X from subsequently claiming the s. 20(1)(j) deduction when the loan is repaid – and that this appears to be the right policy result.