Howard owns 2% of the shares of Y Ltd. He is also employed by Y in a middle management position. On August 1, 20X7, Howard received a loan from Y that he used to repay personal debts. Howard signed a loan agreement, agreeing to pay interest on the loan at the bank prime rate in effect on August 1, 20X7 and to repay the loan over three years by monthly payroll deductions. Similar loans have been made in the past to mid-level management employees. Y has a December 31 year end.
Determine the tax implications of the loan for Howard. Income tax reference: ITA 15(2), (2.4), (2.6), 80.4(3).