Strategies for Executive Compensation: Design and Tax Issues for a ...

Share Purchase Loans (cont’d)
• Requirement for bona fide arrangements for repayment
within a reasonable time does not require all of the loan
terms be “commercial”, e.g., would not preclude an
interest-free loan and may not require specific
contractual repayment terms, but does require that
arrangements for repayment exist when the loan is
granted and the loan be repayable within a “reasonable
time”
• Requirement for repayment on termination of
employment, sale of shares or other event, the timing of
which is uncertain, is unlikely to constitute bona fide
arrangement for repayment within a reasonable time
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Share Purchase Loans (cont’d)
• Interest-free loans and loans at an interest rate
below the “prescribed rate” for employee loans
will result in a taxable benefit under s. 80.4
• Essentially, benefit equals difference between
the prescribed rate and amount of interest
actually paid by the employee for the year and
not later than 30 days after year-end
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Share Purchase Loans (cont’d)
• S. 80.4 applies to loans provided because of or
as consequence of an individual’s previous,
current or intended office or employment
• Taxable benefit under s. 80.4 is deemed under
section 80.5 to be interest for purposes of
paragraph 20(1)(c), which may allow employee
to deduct interest benefit (provided shares can
be said to have been acquired to earn income)
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