Question 2: Shareholder Loans (6 marks)

Taxpayer 1: Mr. A is the sole shareholder and manager of ABC Consulting Ltd. (ABC. ABC has a June 30 fiscal year end. On July 1, Year 1, Mr. A borrowed $150,000 from ABC to purchase a motor home for his personal use. Mr. A did not pay ABC any interest on the loan. Mr. A repaid the full $150,000 amount of the loan on July 1, Year 3.

Determine the full impact on Mr. As taxable income as a result of the loan.

Taxpayer 2: On January 1, Year 2, Ms. A borrowed $150,000 from ABC Inc. (ABC). Ms. A borrowed the funds to acquire newly issued shares of ABC that will increase her ownership of the company from 11% to 21%. Ms. A is also employed by ABC. The loan is being repaid evenly each year on December 31 until December 31, Year 6. Fort has a December 31 year end.

Determine the full impact on Ms. As taxable income as a result of the loan in Year 4