CRA indicated that where a corporation with calendar taxation years makes an interest-bearing loan to its individual shareholder, and the accrued interest is still unpaid at the end of the following year, s. 15(2) will apply separately to such accrued interest amount (to include it in the individual’s income) regardless of whether the loan principal amount was also included in the individual’s income under s. 15(2).
Although on a literal reading, there also could be imputed s. 80.4(2) interest on such unpaid interest amount, CRA that "accrued interest such as …Interest in th[is] Particular Situation does not meet the meaning of ‘debt’ in the context of a textual, contextual and purposive interpretation of subsection 80.4(2),” so that no such imputation would occur whether or not the loan was repaid before the end of the corporation’s second taxation year.