Ms. Kishke joined May Kostcha Ltd. on February 1, 2016 as chief corporate tax officer. On that date she received an interest-free loan of $100,000 to assist her in the financing of a new home, since she was moving from Kingston in eastern Ontario to Dundas in southern Ontario to take the position. In addition, she was given a loan of $20,000 bearing interest at 3% payable on December 31 of each year that the loan is outstanding. This loan was to assist her with other costs associated with her move. The interest was paid when due.

REQUIRED

Determine the effects of these loans on Ms. Kishke’s taxable income in 2016. Assume prescribed rates for 2016 as follows: 1% for the first two quarters and 2% for the last two quarters. Ignore any impact of the leap year.