An individual, a sole shareholder of a corporation, borrows money in order to earn business or property income. To secure his personal loan, his corporation grants a mortgage on a building it owns. The shareholder makes all principal and interest payments on his loan, and also pays his corporation a reasonable fee for the grant of the security (a “guarantee fee”). CRA stated:
[T]he CRA would not generally apply subsection 15(1) solely as a result of the granting of a guarantee where the CRA is of the view that the individual pays the individual’s corporation a reasonable guarantee fee as consideration for the individual’s corporation granting a mortgage guarantee of a personal loan of the individual.