Income Tax Act

Marginal note:Loans

• 80.4 (1) Where a person or partnership receives a loan or otherwise incurs a debt because of or as a consequence of a previous, the current or an intended office or employment of an individual, or because of the services performed or to be performed by a corporation carrying on a personal services business, the individual or corporation, as the case may be, shall be deemed to have received a benefit in a taxation year equal to the amount, if any, by which the total of

  • (a) all interest on all such loans and debts computed at the prescribed rate on each such loan and debt for the period in the year during which it was outstanding, and

  • (b) the total of all amounts each of which is an amount of interest that was paid or payable in respect of the year on such a loan or debt by

    • (i) a person or partnership (in this paragraph referred to as the “employer”) that employed or intended to employ the individual,

    • (ii) a person (other than the debtor) related to the employer, or

    • (iii) a person or partnership to or for whom or which the services were or were to be provided or performed by the corporation or a person (other than the debtor) who does not deal at arm’s length with that person or any member of that partnership,

  exceeds the total of

  • (c) the amount of interest for the year paid on all such loans and debts not later than 30 days after the end of the year, and

  • (d) any portion of the total determined in respect of the year under paragraph 80.4(1)(b) that is reimbursed in the year or within 30 days after the end of the year by the debtor to the person or entity who made the payment referred to in that paragraph.

• Marginal note:Interpretation

  (1.1) A loan or debt is deemed to have been received or incurred because of an individual’s office or employment, or because of services performed by a corporation that carries on a personal services business, as the case may be, if it is reasonable to conclude that, but for an individual’s previous, current or intended office or employment, or the services performed or to be performed by the corporation,

  • (a) the terms of the loan or debt would have been different; or

  • (b) the loan would not have been received or the debt would not have been incurred.

• Marginal note:Idem

  (2) Where a person (other than a corporation resident in Canada) or a partnership (other than a partnership each member of which is a corporation resident in Canada) was

  • (a) a shareholder of a corporation,

  • (b) connected with a shareholder of a corporation, or

  • (c) a member of a partnership, or a beneficiary of a trust, that was a shareholder of a corporation,

  and by virtue of that shareholding that person or partnership received a loan from, or otherwise incurred a debt to, that corporation, any other corporation related thereto or a partnership of which that corporation or any corporation related thereto was a member, the person or partnership shall be deemed to have received a benefit in a taxation year equal to the amount, if any, by which

  • (d) all interest on all such loans and debts computed at the prescribed rate on each such loan and debt for the period in the year during which it was outstanding

  exceeds

  • (e) the total of

    • (i) the amount of interest for the year paid on all such loans and debts (other than loans deemed to have been made under subsection 15(2.17)) not later than 30 days after the end of the year, and

    • (ii) the specified interest amounts, for the year, in respect of all such loans that are deemed to have been made under subsection 15(2.17).

• Marginal note:Where ss. (1) and (2) do not apply

  (3) Subsections 80.4(1) and (2) do not apply in respect of any loan or debt, or any part thereof,

  • (a) on which the rate of interest was equal to or greater than the rate that would, having regard to all the circumstances (including the terms and conditions of the loan or debt), have been agreed on, at the time the loan was received or the debt was incurred, between parties dealing with each other at arm’s length if

    • (i) none of the parties received the loan or incurred the debt by virtue of an office or employment or by virtue of the shareholding of a person or partnership, and

    • (ii) the ordinary business of the creditor included the lending of money,

    except where an amount is paid or payable in any taxation year to the creditor in respect of interest on the loan or debt by a party other than the debtor; or

  • (b) that was included in computing the income of a person or partnership under this Part.

• Marginal note:Interest on loans for home purchase or relocation

  (4) For the purpose of computing the benefit under subsection 80.4(1) in a taxation year in respect of a home purchase loan or a home relocation loan and for the purpose of paragraph 110(1)(j), the amount of interest determined under paragraph 80.4(1)(a) shall not exceed the amount of interest that would have been determined thereunder if it had been computed at the prescribed rate in effect at the time the loan was received or the debt was incurred, as the case may be.

• Marginal note:Idem

  (5) Where an individual has, before November 13, 1981,

  • (a) received a housing loan, or

  • (b) made arrangements in writing in respect of a home purchase loan that would, if the loan were made before 1982, have been a housing loan,

  for the purpose of computing the amount of interest referred to in paragraph 80.4(1)(a) on the loan, the amount of the loan may be reduced

  • (c) for the 1982 taxation year, by the amount, if any, by which $40,000 exceeds the total of

    • (i) all amounts claimed as a reduction under this subsection for the year by the individual’s spouse or common-law partner with whom the individual resided in the year, and

    • (ii) all amounts claimed as a reduction under this subsection for the year by the individual on all other loans, and

  • (d) for the 1983 taxation year, by the amount, if any, by which $20,000 exceeds the total of

    • (i) all amounts claimed as a reduction under this subsection for the year by the individual’s spouse or common-law partner with whom the individual resided in the year, and

    • (ii) all amounts claimed as a reduction under this subsection for the year by the individual on all other loans.

• Marginal note:Deemed new home purchase loans

  (6) For the purposes of this section, other than paragraph 80.4(3)(a) and subsection 80.4(5), where a home purchase loan or a home relocation loan of an individual has a term for repayment exceeding five years, the balance outstanding on the loan on the date that is five years from the day the loan was received or was last deemed by this subsection to have been received shall be deemed to be a new home purchase loan received by the individual on that date.

• Marginal note:Definitions

  (7) In this section,

  home purchase loan

  home purchase loan means that portion of any loan received or debt otherwise incurred by an individual in the circumstances described in subsection 80.4(1) that is used to acquire, or to repay a loan or debt that was received or incurred to acquire, a dwelling, or a share of the capital stock of a cooperative housing corporation acquired for the sole purpose of acquiring the right to inhabit a dwelling owned by the corporation, where the dwelling is for the habitation of

  • (a) the individual by virtue of whose office or employment the loan is received or the debt is incurred,

  • (b) a specified shareholder of the corporation by virtue of whose services the loan is received or the debt is incurred, or

  • (c) a person related to a person described in paragraph (a) or (b),

  or that is used to repay a home purchase loan; (prêt consenti pour l’achat d’une maison)

  prescribed rate

  prescribed rate of interest means

  • (a) 6% per annum before 1978,

  • (b) 8% per annum for 1978, and

  • (c) for any year, or part thereof, after 1978, such rate of interest as is prescribed therefor except that, for the purpose of computing the benefit under subsection 80.4(1) in a taxation year on a home purchase loan received after November 12, 1981 and before 1982, the prescribed rate of interest at the time the loan was received shall be deemed to be 16% per annum; (taux prescrit)

  specified interest amount

  specified interest amount, for a year, in respect of a loan (referred to in this definition as the deemed loan) deemed to have been made under subsection 15(2.17) by an ultimate funder (as defined in subsection 15(2.192)), means the amount determined by the formula

  A × (B/C)

  where

  A

  is the amount of interest for the year paid not later than 30 days after the end of the year on all debts — owing by one or more funders (as defined in subsection 15(2.192), but excluding any funders that are ultimate funders as defined in subsection 15(2.192)) under one or more funding arrangements (as defined in subsection 15(2.192)) to the ultimate funder — that gave rise to the deemed loan;

  B

  is the average amount outstanding for the year in respect of the deemed loan; and

  C

  is the total of all amounts each of which is the average amount outstanding in the year as or on account of an amount owing under a debt described in A. (montant d’intérêts déterminé)

• Marginal note:Meaning of connected

  (8) For the purposes of subsection (2), a person or partnership is connected with a shareholder of a corporation if that person or partnership does not deal at arm’s length with, or is affiliated with, the shareholder, unless, in the case of a person, that person is

  • (a) a foreign affiliate of the corporation; or

  • (b) a foreign affiliate of a person resident in Canada with which the corporation does not deal at arm’s length.