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Lending $100,000 from a business to a brother

Expert: John R Mott

Lily asked:

I live in Calgary, Alta. My husband and I are only two shareholders of a corporation. My husband's brother (who lives oversea) wants to borrow $100,000 from us to do his business, and promises to pay us back within a year. If we lend him the money, what kind of interest rate should we charge in order to get rid of our own tax trouble?

John R Mott answered:

There are a number of issues you need to be aware of. First, the loan must bear an interest rate equal to or greater than the CRA prescribed rate (currently 1 per cent) at the time the loan is made, otherwise the borrower is deemed to receive a taxable benefit.

Second, the loan must be repaid by the end of the tax year of the corporation, following the year in which the loan is made, otherwise the unpaid balance of the loan is included in the income of the borrower.

About the author

John Mott is a chartered accountant and tax specialist with a private practice in mid-town Toronto. He provides tax, accounting and advisory services to individuals and small businesses. He may be visited online at:

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