All of the shares of ABC Inc, a CCPC are owned by Peter. In addition to being

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Question:

All of the shares of ABC Inc, a CCPC are owned by Peter. In addition to being the sole shareholder of ABC Inc., Peter works full time in the business.

ABC Inc. has established generous benefit policies in order to retain its employees. All of its employees who have more than 12 months of service are entitled to interest free loans as follows:

_ The Company will provide a loan of up to $200,000 to assist an employee in acquiring a residence. The principal amount of the loan must be repaid at the end of five years.

_ The Company will provide a loan of up to $25,000 to assist an employee in acquiring an automobile that will be used to carry out employment duties. These loans must be repaid within three years.

During the year ending December 31, 2019, Peter received loan proceeds from his

Company as follows:

1. On February 28, Peter borrows $200,000 in order to purchase a new residence. The loan is interest free. The loan will be repaid in two annual instalments of $100,000, beginning on March 1, 2020.

2. On May 1, Peter borrows $185,000 to acquire a foreign sports car. He will use it for personal activities only. The loan bears interest at an annual rate of 1 per cent and will be repaid on May 1, 2024.

3. On July 1, Peter borrows $40,000 to cover corrective back surgery in a U.S. hospital.

The procedure will significantly relieve her back pain and is not available in Canada. The loan is interest free and will be repaid on June 30, 2020.

All repayments and interest payments are made as scheduled. In all of the years under consideration, assume the relevant prescribed rate is 2 percent.

Required:

A. Indicate the tax consequences that will accrue to Peter a s a result of receiving these loans.

Briefly explain your conclusions for each loan for the years it is outstanding. Using bullet point format. Provide quantitate analysis for your answer.

B. Identify any tax planning issues that are associated with these loans.