Although loans between shareholders and their
companies might be common, a recent Tax Court of Canada
case shows that they can have hidden tax costs, Toronto tax
litigator
Adrienne Woodyard writes in Lawyers Weekly.
In Mast v. Canada, a taxpayer who was also
the sole shareholder of a corporation decided to use company funds
to build a home. The taxpayer signed an agreement with the company
for a non-interest bearing loan of up to $1 million with flexible
repayment terms.. He funded a portion of the construction from
advances from the company, repaying a portion of the debt in yearly
instalments.
Following an audit of the company, the Canada Revenue Agency
(CRA) determined that the loan was made to the taxpayer in his
capacity as a shareholder. The taxpayer, however, said
he received the loan as a company employee. The Tax Court
of Canada agreed with the CRA.
