Compute allowable interest deduction

Assignment Help Financial Accounting

Reference no: EM133380114

Case: Mr. Belmonte is the vice-president of SR&ED with Belmonte Homes Ltd. He is one of a group of eight senior executives who have been granted options to purchase from the corporation unissued nonvoting Class B common shares of the corporation. He 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 April 1, 2020, Mr. Belmonte borrowed $50,000 to enable her to exercise some of her stock options. He signed a note promising to repay $10,000 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. Assume that the prescribed rates in 2020 were: first quarter, 3%; second quarter, 3%; third quarter, 2%; fourth quarter, 3%.

Required: 1. Advise Mr. Belmonte of the 2020 Division B income tax effects to him of receiving the loan amount of $50,000, in particular discuss the following:

a. Application of s.15(2) of the Income Tax Act, and

b. Application of s.15(2.4) of the Income Tax Act (Support your advice with specific section references to your answer.)

2. Compute imputed interest benefit of paying interest of 1% to the corporation.

3. Compute allowable interest deduction, if any, under s.20(1)(c) of the Income Tax Act

Reference no: EM133380114

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