Kelly Lowie is one of eight senior executives at Maple Tree Sports (MTS) who have been granted options to purchase from the unissued non-voting Class B common shares of the corporation. She presently owns 15% of these shares. In order to assist this group of employees to acquire shares under the stock option plan, the corporation provides loans at low interest rates under an established policy approved by the Board of Directors.

On January 1, 2018, Ms. Lowie borrowed $60,000 to enable her to exercise some of her stock options. She signed a note promising to repay $12,000 of principal on the anniversary date of the loan in each of the next five years and to pay interest at a rate of 1% per year paid quarterly. Prescribed rates issued by the Canada Revenue Agency can be found at: https://www.canada.ca/en/revenue-agency/services/tax/prescribed-interest-rates.html.

Required:

For the 2018 year, advise Ms. Lowie of the income tax effects to her of receiving the loan amount of $60,000 and of paying interest of 1% to the corporation. Be complete in your analysis of these features of the loan in respect of the likely provisions of the Act that could apply and support your advice with complete calculations and case facts where necessary. Section references may be helpful in providing precision to your answer.