Kristie owns 35% of Big City Developments Inc. (BCD), which has a December 31 year end. She is also an employee of the company. On March 31, Year 1, she purchased her shares of BCD from treasury for $150,000. BCD lent her all the funds for the share purchase at an interest rate of 4%. She is required to repay the loan at the rate of $25,000 each January 1.
On May 15, Year 1, BCD loaned Kristie $75,000 to purchase a new motor home and boat. Since she is a significant shareholder, she was not required to repay any of the loans in Year 1 or Year 2. At the end of Year 3, Kristie repaid $25,000 of the loan.
REQUIRED
Calculate the income tax implications to Kristie as a result of receiving these loans for Years 1, 2, and 3. Assume the prescribed rate of interest for shareholder loans was 6% throughout all the years. (Ignore the effects of a leap year, if applicable.)