1992 MANITOBA ROUND TABLE
QUESTION NO. 6
Shareholder Benefits - Mortgage of Property
A corporation grants a mortgage on property it owns to secure a loan taken out by a shareholder. The shareholder makes all payments on the debt personally. Does the granting of the mortgage create a taxable benefit? Does the answer differ if the shareholder pays a reasonable fee to the corporation for its granting the mortgage?
DEPARTMENT'S POSITION
In theory, a benefit could very well arise as a result of a mortgage given by a corporation in respect of a loan taken out by a shareholder or any other manner of guarantee provided by the corporation in respect of that loan. For instance, the benefit could be the difference in rates charged with and without the corporation's security on the loan or what the borrower would have to pay a third party to provide similar security for the loan. However, unless there is some evidence that the shareholder is not, from the outset, able to repay the loan, it is unlikely that the Department would attempt to assess such a benefit.
It follows that, where a shareholder pays a reasonable fee for the mortgage provided by the corporation, a benefit will not arise by virtue of placing the mortgage.
Should the corporation forfeit the mortgaged property or otherwise be required to make payment in respect of the loan, this would, of course, clearly be a taxable event.
A. Humenuk - Section 24
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