In Vine Estate v R, [1990] 1 C.T.C. 18, 29 F.T.R. 59, 89 D.T.C. 5528 (FCTD), husband and wife owned 50% each of the shares of Canco, and husband owned all of the shares of a Florida corporation (Sisterco). Canco loaned money to Sisterco, which carried on a business that only ever lost money. The Court upheld a CRA reassessment that included the amount of the loan (under 15(1)) and an interest benefit in the husband’s income.
The author criticizes the decision but then suggests that the same result could be avoided by having a holdco own the shares of both Canco and Sisterco. Where such a structure is not practical, the loan should have reasonable terms, bear interest, be secured and, perhaps, be guaranteed by the shareholder of the borrower.
Perry Truster “The Trouble with Some Intercompany Loans” 13:1 Tax for the Owner-Manager (Jan 2013)
