21 October 2021 Roundtable, 2021-0905101C6 - CPA Provincial Roundtable Question 32

By services, 20 July, 2022
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CPA Provincial Roundtable Question 32
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English
CRA tags
2(2), 8(1), 15(2), 20(1), 20(1)(j), 20(1)(ww), 80.1(4)(c), 91(5), 93(3)(a), 110(1), 110.1(1), 110.2(2), 110.6(2), (2.1), and (2.2), 111(1), 112(1), (2.2), (2.3), and (2.4), 113(1), 120.4(1), (2), and (3), 138(6)
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2021-0905101C6
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Conference
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650821
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Main text

Principal Issues: Does claiming the paragraph 20(1)(ww) deduction preclude a taxpayer from subsequently claiming the paragraph 20(1)(j) deduction when the loan is repaid?

Position: No. Paragraph 20(1)(ww) provides a deduction in computing income, whereas the bracketed phrase contained in paragraph 20(1)(j) only applies to deductions in computing taxable income.

Reasons: Based on the provisions of the Act, jurisprudence and CRA publications.

PROVINCIAL ROUNDTABLE – QUESTION 32 (2021-090510)

Question 32

Loans to shareholders and the tax on split income (TOSI)

A loan to a shareholder may result in an income inclusion (Subsection 15(2)) to a shareholder or connected person. It is possible that this income inclusion could be subject to the TOSI. In such a case, it would be deducted from income (Paragraph 20(1)(ww)). Normally, a deduction is available on repayment of a shareholder loan (Paragraph 20(1)(j)), however this applies only where the amount has not previously been deducted. Does the CRA consider a deduction under Paragraph 20(1)(ww), because the loan advance was subject to TOSI, to prevent any future deduction on repayment of the loan?

The question should be reworded as follows: Does claiming the paragraph 20(1)(ww) deduction preclude a taxpayer from subsequently claiming the paragraph 20(1)(j) deduction when the loan is repaid?

Answer

No. Paragraph 20(1)(ww) provides a deduction in computing income, whereas the bracketed phrase contained in paragraph 20(1)(j) only applies to deductions in computing taxable income.