Bill C-29 (Dec 2016) amended the Income Tax Act (Canada) so that a loan by a corporation to an arm’s length entity could be treated as a loan to a shareholder of the corporation if the entity is required to make a loan to the shareholder or a connected person or partnership.
The rules could apply where corporate-owned life insurance or other property is used as security for a loan from a bank to a shareholder of the corporation (the shareholder loan). Unless the property secures only the shareholder loan, the property will be a “specified right” so that subsection 15(2.16) could apply. If the property secures future debt of the shareholder or corporate debt, then the property might be a “specified right”.
Florence Marino, “‘Back-to-Back’ Loan Rules and Shareholder borrowing using corporate-owned life insurance as collateral security” Manulife As a Matter of Tax February 2017
