| # 5-921238 | |
| John Chan | |
| May 25, 1992 |
ISSUE SHEET
Question 40 - Benefit on Interest-Free Loans to Beneficiaries
(1991 Canadian Tax Foundation Roundtable)
Issue
The question asked Revenue Canada to confirm that it will not assess a taxable benefit under subsection 105(1) where a trust makes an interest-free loan to a beneficiary.
Answer
The answer stated that, as indicated in question 22 of the 1990 Roundtable, the court in Cooper v MNR, 88 DTC 6525 (F.C.T.D.), decided that an interest-free loan to a beneficiary did not result in a subsection 105(1) taxable benefit and the Department will apply this decision in similar situations.
Discussion
The reference to the question in the 1990 Roundtable was to question 24, not 22, at page 50:14 of the 1990 Conference Report.
The Cooper case was decided in the taxpayer's favour. In this case, a beneficiary of a trust received an interest-free loan from the trust and the Minister included in the beneficiary's income under subsection 105(1) a taxable benefit for interest computed under Regulation 4300(6).
In a very detailed analysis, the court compared the requirement for inclusion of the value of benefits in income under subsection 105(1) to similar requirements in sections 6 and 15 applicable to employees and shareholders, respectively. The court concluded that, prior to the enactment of section 80.4 in 1979 which deems prescribed interest on interest-free loans to employees and shareholders to be benefits, such interest was not a benefit that was taxable under sections 6 and 15; and since section 80.4 does not contain any reference to section 105, section 105 does not apply to the value of interest-free loans to beneficiaries from trusts. See pages 6535 and 6536.
That Revenue Canada has adopted the position in the Cooper case was published in the 1991 and 1990 CTF Roundtables and in an external opinion to 24(1) dated July 19, 1990 (File # 901275). See also Appeals Decision # 89-16 dated March 22, 1989.