Shareholder loan

The CRA’s Income Tax Folio S3-F1-C1 says subsection 15(2) applies to a person or partnership receiving a loan or incurring a debt in a tax year by virtue of shareholding. In a sale, a shareholder loan balance is something to find on the balance sheet and ask about. The answer on loans to a director or employee covers the lending side.

Exceptions

• The folio says subsection 15(2.3) excludes a loan made in the ordinary course of the lender’s ordinary business of lending money, or a debt arising in the ordinary course of the creditor’s business, where bona fide arrangements for repayment within a reasonable time are made at the time, with a further condition for loans made after 2022
• The folio says subsection 15(2.6) excludes a loan repaid within one year after the end of the lender’s or creditor’s tax year in which it was made, if the repayment is not part of a series of loans or other transactions and repayments
• The CRA says that without a written agreement or convincing evidence that a loan exists, and with no debtor-creditor relationship, subsection 15(2) will not apply

What to ask

Ask whether the balance was repaid and when, whether the terms were in writing, and what the accountant says about which exception applies. In a share sale, ask who settles the balance and when.