Marian Copps owns 100 percent of the shares of outstanding shares of Copps Copper Ltd., a Canadian controlled private corporation that specializes in producing copper artifacts for various religious organizations. Ms. Copps is the top salesperson at Copps Copper Ltd.

The Company has an October 31 year end. It is known for its generous treatment of its employees. This includes the extension of low-interest loans to all employees with more than 2 years of service with the Company. More specifically, the Company will:

• Provide a loan of up to $150,000 to assist an employee in acquiring a residence. When granted, such loans bear interest at 1 percent and must be repaid at the end of five years.
• Provide a loan of up to $30,000 to assist an employee in acquiring an automobile that will be used in their employment duties. As with the home purchase loans, these loans bear interest at 1 percent and must be repaid at the end of five years.

During the calendar year ending December 31, 2019, Ms. Copps received loan proceeds from her company as follows:

1. On January 31, Ms. Copps borrows $150,000 in order to purchase a new residence. The loan bears interest at an annual rate of 1 percent. The loan will be repaid in two annual instalments of $75,000, beginning on February 1, 2020.

2. On March 1, Ms. Copps borrows $349,000 to acquire a new Ferrari F12. She will use it to cut down the driving time to and from her cottage. The loan bears interest at an annual rate of 1 per cent and will be repaid on March 1, 2024.

3. On June 1, Ms. Copps borrows $35,000 to cover cosmetic surgery procedures that will enhance her appearance. The loan is interest free and will be repaid on May 31, 2020.

4. On November 1, Ms. Copps borrows $25,000 from her company to finance a much needed week at a luxurious health spa. Since she has already borrowed a significant amount of funds, she decides the loan will bear interest at 3 percent. It will be repaid on October 1, 2021.

All repayments are made as scheduled. In all of the years under consideration, assume the relevant prescribed rate is 2 percent.

Required:

A. Indicate the tax consequences that will accrue to Ms. Copps as a result of receiving these loans. Briefly explain your conclusions for each loan for the years it is outstanding. Base your interest calculations on the number of months the loans are outstanding.

B. Identify any tax planning issues that are associated with these loans.