SSS Problem 3-3 (Loans To Employees) Eileen Lee is an extremely successful computer salesperson living and working in Hearst, Ontario, who is unhappy with her current employer. She is discussing a compensation package with her future employer, HER Ltd., a very profitable Canadian controlled private corporation (CCPC). As Ms. Lee's current and anticipated investment income place her in the 51% income tax bracket, she is very interested in finding ways in which she can be compensated without incurring the same amount of income tax as would be the case on an equivalent amount of salary. Ms. Lee is contemplating a major cash outlay. She plans to completely renovate a commercial property that she owns. She had been planning to obtain a loan of $100,000 at a 5% rate in order to finance the renovations. She has suggested that it might be advantageous for the company to provide her with an interest free loan of $100,000 as part of her compensation. Because she will be using the loan for income producing purposes, any interest on the loan will be deductible to Ms. Lee. HER Ltd. is able to invest funds at a before income tax rate of 10%. It is subject to income tax at rate of 28%. Assume that the relevant prescribed rate is 2%. Required: Evaluate, from the point of view of the cost to the company, Ms. Lee's suggestion of providing her with an interest free loan in lieu of sufficient salary to carry a commercial loan at the rate of 5%. Assume that the cost of the renovations will be fully deductible in the year in which they are made. SSS Problem 3-3 (Loans To Employees) Eileen Lee is an extremely successful computer salesperson living and working in Hearst, Ontario, who is unhappy with her current employer. She is discussing a compensation package with her future employer, HER Ltd., a very profitable Canadian controlled private corporation (CCPC). As Ms. Lee's current and anticipated investment income place her in the 51% income tax bracket, she is very interested in finding ways in which she can be compensated without incurring the same amount of income tax as would be the case on an equivalent amount of salary. Ms. Lee is contemplating a major cash outlay. She plans to completely renovate a commercial property that she owns. She had been planning to obtain a loan of $100,000 at a 5% rate in order to finance the renovations. She has suggested that it might be advantageous for the company to provide her with an interest free loan of $100,000 as part of her compensation. Because she will be using the loan for income producing purposes, any interest on the loan will be deductible to Ms. Lee. HER Ltd. is able to invest funds at a before income tax rate of 10%. It is subject to income tax at rate of 28%. Assume that the relevant prescribed rate is 2%. Required: Evaluate, from the point of view of the cost to the company, Ms. Lee's suggestion of providing her with an interest free loan in lieu of sufficient salary to carry a commercial loan at the rate of 5%. Assume that the cost of the renovations will be fully deductible in the year in which they are made