Overview
These technical interpretations address the income tax consequences of loans between related corporations, including:
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Loans from a Canadian corporation to another related corporation
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Interest deductibility
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Shareholder-benefit issues
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Application of ITA 15(1), 56(2), 80.4, 246(1)
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Whether an intercorporate loan constitutes a benefit, appropriation, or transfer of property
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Whether the loan is at arm’s length or non-arm’s-length
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Whether interest-free or low-interest loans create imputed-interest income
All conclusions below come directly from the CRA files you uploaded.
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1. Intercorporate Loans Are Generally Permitted if Made for Bona Fide Business Reasons
(Based on 2003-0181655 & 2005-0140961C6)
The Canada Revenue Agency confirms:
A loan between two related corporations is not automatically a shareholder benefit.
A benefit arises only if a shareholder of either corporation receives a personal or indirect advantage.
A loan made for commercial or financing purposes between related companies is not a taxable benefit under ITA 15(1).
Corporate-to-corporate loans do not fall under s.15(2) (shareholder loan rule).
That section applies only to loans to individuals who are shareholders.
2. When Can an Intercorporate Loan Trigger a Shareholder Benefit?
(Based on 2006-0216781E5)
CRA states a shareholder benefit may arise where:
✔ The loan indirectly benefits a shareholder of either corporation
(e.g., funds ultimately flow to the shareholder).
✔ The loan is made on terms more favourable than reasonable commercial standards
(e.g., no expectation of repayment).
✔ The loan is made for a non-business purpose but structured between corporations to avoid s.15(2).
If a shareholder benefit is found, the value may be included in shareholder income under ITA 15(1) or ITA 56(2) (indirect payment).
3. Interest-Free or Low-Interest Intercorporate Loans
(Based on 2005-0140961C6 & 9015565)
Generally, interest-free loans between related corporations do not automatically create imputed interest income.
Section 80.4(2) (imputed interest) applies only to individuals receiving low-interest loans.
It does not apply to corporations.
A corporation lending to another corporation at 0% interest does not create a shareholder-benefit issue unless:
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The loan benefits a shareholder personally, or
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The corporate structure is used to avoid tax on a shareholder loan.
CRA will review purpose, control, and flow of funds to determine if the loan masks a benefit.
4. Deductibility of Interest Paid or Accrued
(Based on 2005-0140961C6 & 9015565)
Generally, interest-free loans between related corporations do not automatically create imputed interest income.
Section 80.4(2) (imputed interest) applies only to individuals receiving low-interest loans.
It does not apply to corporations.
A corporation lending to another corporation at 0% interest does not create a shareholder-benefit issue unless:
The loan benefits a shareholder personally, or
The corporate structure is used to avoid tax on a shareholder loan.
CRA will review purpose, control, and flow of funds to determine if the loan masks a benefit.
5. Key Takeaways Across All Rulings
- Intercorporate loans for commercial reasons are not shareholder benefits unless a shareholder is personally advantaged.
- Interest-free loans between corporations do not create imputed interest under 80.4(2).
- Shareholder benefit rules apply when the economic benefit, directly or indirectly, reaches a shareholder.
- Interest deductibility depends solely on the purpose of borrowed funds, not the interest rate charged.
- CRA will look through multi-corporation structures if they appear designed to shift funds to shareholders.
Disclaimer
This page summarizes CRA technical interpretations:
2003-0181655, 2005-0140961C6, 2006-0216781E5, 2012-0464411I7, 9015565, and CRA correspondence DTS-17-002108 & DTS-17-002118. These interpretations may not represent current CRA policy. Content is for general educational purposes only and not tax or legal advice.
