Dave Stieb is a valued senior executive and shareholder of Jays Ltd., a large Canadian-controlled private corporation. The corporation has been encouraging its employees to acquire its Class B common shares by lending the money to them to acquire the shares at no interest. Accordingly, the corporation has a written policy for making such loans to all full-time employees with at least three years of service with the corporation and many employees, including Dave, have received these loans. 

 

On February 14, 2022, Dave received a loan of $37,000 to purchase 1,000 new shares of the corporation directly from the corporation at their fair market value on that date. The loan was repayable in seven equal annual instalments payable on the anniversary date of the loan. Dave already owns about 13% of the issued Class B common shares. 

 

Required: 

a. Verify that the $37,000 principal amount of this loan does not have to be included in Dave's income in 2022 by reference to specific conditions in the appropriate provisions of the Act. Briefly state each relevant condition and apply it to the facts of this case to show that each condition is met. 

 

b. Compute the net effect of receiving this loan on Dave's income for 2022. The prescribed quarterly interest rates for 2022 are as follows: 3% from January to June 2022; 2% for July 1 to September 30; and 3% for the fourth quarter of 2022.

Answer rating: 100% (QA)

a To determine whether the 37000 principal amount of the loan to Dave must be included in his income in 2022 we need to consider the conditions outlin... View the full answer