Fix Announced For "Government Assistance" Tax Problem Regarding Low-Interest Loans

Overview

In Canada's Fall Economic Statement, the federal government announced a fix for tax problems related to government assistance in the form of low-or-no-interest loans. Read on to learn more about this latest development.

Background

The Income Tax Act (Canada) (ITA) has various adverse rules dealing with "government assistance" received, receivable or expected to be received by a taxpayer. In some cases, these rules reduce the amount of a taxpayer's expenditures by the amount of government assistance obtained that relates to such expenditures. This has the impact of reducing deductible expenses, increasing profit and thereby increasing income tax payable. In other cases, these rules reduce the taxpayer's cost basis in property it has acquired by the amount of related government assistance. This also has the effect of reducing deductible expenses (i.e., where the property is depreciated such that its cost is deducted in computing income for tax purposes