# Borrowing from a CCPC



## andrewf (Mar 1, 2010)

So a tax question that I could not find a clear answer to on the internet.

Suppose an individual has a wholely-owned CCPC holding company with $100k cash in it. The standard options would be to distribute the cash as salary or dividends to the shareholder, or keep the cash in the Hold Co and invest. My question is about a third option (which is really a special case of the second).

Suppose Hold Co makes an interest only loan to the shareholder at the prescribed rate (currently 1%). The shareholders invests these funds in income generating assets (say, stocks), makes annual interest payments of $1,000 to Hold Co and deducts the interest expense from their income. Hold Co pays tax on this income.

Is this legit? It seems like it ought to be.

The benefit here is that the shareholder has better tax treatment than the CCPC on some assets, like foreign stocks.


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## MoneyGal (Apr 24, 2009)

You may find this useful: http://blog.taxresource.ca/shareholder-loans/

Short version is that shareholder loans are possible, and useful, but they are subject to rules (outlined in the link, above) which mean they don't work as well as your example suggests.


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## andrewf (Mar 1, 2010)

So the full $100k would be included in income and have tax paid on it until the loan is repaid?

Too bad... I'm not even sure that makes sense.


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## MoneyGal (Apr 24, 2009)

It makes sense if the conditions (1-3 in the article) are met, and in certain other circumstances, but not as you outlined.


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## marina628 (Dec 14, 2010)

I take loans from my business from time to time ,our company year end is Sept 30 so October 1 2012 I took a loan and don't have to repay it until Sept 30,2013.It is nice option to have for short term cash flow issues like a stock sale


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## marina628 (Dec 14, 2010)

I just wanted to add that when our accountant does the final year end anything showing on the books as a shareholder loan we take on our t4 that tax year .I don't think you can carry loans over from year to year.


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## oedema (Jan 1, 2012)

Bad idea, if done wrong CRA will asses taxes on the amount of the loan, and this is exactly the type of loan they discourage. Best to leave the cash in the corporation and invest it there. Distributing any investment income at the end of each year has the same net effect as if those dividends were earned personally..


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## andrewf (Mar 1, 2010)

Well, not quite. Foreign withholding taxes are somewhat more punitive inside a CCPC.


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