Jay is an employee and 15% shareholder of Rick's Welding Shop Ltd. (Rick's). During the 20X7 calendar year, Jay was having cash flow problems. Rick's gave Jay a loan of $5,000 on May 1, 20X7 to help him out. Rick's also gave Jay's son, Jake, a loan of $2,000 on September 30, 20X7 to help him meet expenses while at college. Rick's has said that Jay and Jake can repay the loans whenever they can afford it. The loans remain outstanding as at December 31, 20X8. Rick's year-end for accounting and taxation purposes is December 31.

How much, and in which taxation year, is Jay required to include in his taxable income as a result of the above transactions?

Question 6 options:

1)

$7,000 20X7

2)

$5,000 20X8

3)

$5,000 20X7

4)

$5,000 20X8