2021-0911831C6 CTF Annual Tax Conference (2021) – Question 2

Principal Issues: Does claiming the paragraph 20(1)(ww) deduction preclude a taxpayer from subsequently claiming the paragraph 20(1)(j) deduction when the loan is repaid?

Position: No. Paragraph 20(1)(ww) provides a deduction in computing income, whereas the bracketed phrase contained in paragraph 20(1)(j) only applies to deductions in computing taxable income.

Reasons: Based on the provisions of the Act, jurisprudence and CRA publications.

Author: Weaver, Matthew
Section: 2(2), 8(1), 15(2), 20(1), 20(1)(j), 20(1)(ww), 80.1(4)(c), 91(5), 93(3)(a), 110(1), 110.1(1), 110.2(2), 110.6(2), (2.1), and (2.2), 111(1), 112(1), (2.2), (2.3), and (2.4), 113(1), 120.4(1), (2), and (3), 138(6)

2021 CTF Annual Conference

CRA Roundtable

Question 2: Subsection 15(2) Shareholder Loans and TOSI

Assume a taxpayer (X) has an amount included in his or her income under subsection 15(2) in respect of a shareholder loan for a taxation year. The amount is also "split income" that is subject to tax under subsection 120.4(2) ("TOSI"). In computing X's net income, X is entitled to a deduction under paragraph 20(1)(ww) for the income subject to TOSI and this amount will be equal to the amount included in X's income under subsection 15(2). In a subsequent taxation year, X repays the shareholder loan. Does claiming the paragraph 20(1)(ww) deduction preclude X from subsequently claiming the paragraph 20(1)(j) deduction when the loan is repaid?

CRA Response

Paragraph 20(1)(j) provides:

(j) such part of any loan or indebtedness repaid by the taxpayer in the year as was by virtue of subsection 15(2) included in computing the taxpayer’s income for a preceding taxation year (except to the extent that the amount of the loan or indebtedness was deductible from the taxpayer’s income for the purpose of computing the taxpayer’s taxable income for that preceding taxation year), if it is established by subsequent events or otherwise that the repayment was not made as part of a series of loans or other transactions and repayments; [Emphasis added]

As provided in our answer to question 32 of the CPA Provincial Roundtable (2021-090510), paragraph 20(1)(ww) provides a deduction in computing income, whereas the bracketed phrase contained in paragraph 20(1)(j) only applies to deductions in computing taxable income. Consequently, the fact that X claimed the paragraph 20(1)(ww) deduction should not, in and of itself, preclude X from subsequently claiming the paragraph 20(1)(j) deduction when the loan is repaid.

Matthew Weaver
2021-091183
November 25, 2021

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