In Rémillard v R, 2011 TCC 327, the Court spent some time considering whether an employee is required to include an amount in income in respect of a loan advanced to him by his corporate employer if the loan is not a “commercial debt obligation” as defined in subsection 80(1).
Let’s give the taxpayer’s lawyer full marks for creativity and tenacity. The Court, however, was not buying. The lawyer argued that an employee who received a loan that was forgiven need include an amount in income only if the loan was a commercial debt obligation because of the “conditions” in subsection 6(15.1). Mr. Remillard had used the loan for personal purposes, and so the debt couldn’t have been a commercial debt obligation. The Tax Court held that subsection 6(15.1) did not impose conditions for the inclusion of an amount in employment income. Rather, the subsection imposed conditions for the provision of relief from the inclusion of the full amount of the loan.
It would be a strange result indeed if a loan to an employee needn’t be included in income as an employment benefit merely because the loan was used for personal purposes and not, say, for investment. What is almost as strange, however, is that the CRA assessed Mr. Remillard for an employment benefit. At the time he receivd the loan, he was the sole shareholder and director of the corporate employer-lender. Why didn’t the CRA assess under subsection 15(2)? It seems much more likely that the taxpayer received the loan because he was the controlling shareholder and not because he was an employee. For example, the corporate employer loaned him $5 million and then forgave the loan later without making any effort to collect the amount from him.
Perhaps the answer lies in the timing of the loan and the CRA audit. The loan was made in 2000 and forgiven in 2002. If 15(1) applied, then the taxpayer should have included in the amount in income in 2001 (perhaps). The CRA audit, however, began only a few months before the expiry of the normal reassessment period for the 2002 taxation year. Maybe the CRA didn’t feel able to reassess 2001 outside the normal reassessment period.
