On September 13, 2023, the Canada Revenue Agency (CRA) announced a new administrative policy on loans and employee debt and how employers determine the rise of a taxable benefit.
Generally, if a low-interest or interest-free loan is provided or a debt is incurred because of employment or shareholdings, the interest benefit is taxable. Depending on your situation, the interest benefit may not be taxable under the CRA's administrative policy.
Forgiven loans you provide to your employees or a shareholder are always taxable.
New CRA Administrative Policy (Retroactive to January 1, 2023)
Under the new CRA Administrative Policy, if the loan is received or debt is incurred because of employment, the interest benefit is not taxable if all of the following apply:
The total amount of all loans received is $10,000 or less per calendar year (this includes loans of different term durations and principal amounts); and
The term of the loan(s) is 60 days or less; and
The loan is not received because of shareholdings .
If the term of the loan spans two calendar years, the loan will count as part of the $10,000 limit for the year in which the loan was received.
If the loan is considered received because of shareholdings, the new CRA administrative policy does not apply.
If the loan does not meet all of the conditions above, the interest benefit is taxable.
If the full principal of the loan is not repaid within 60 days, the interest benefit is taxable. You will need to report the amount of the benefit on a T4 slip in the year the loan is received by calculating the value of the benefit using the prescribed interest rates.
Forgiven loans you provide to your employees are always taxable and reported on the T4 slip boxes 14 & 40.
Employers must determine if:
The benefit was received from the loan or debt
The interest benefit received from the loan must be calculated
The interest benefit is taxable
Employers must withhold the Canada Pension Plan (CPP) contributions, Employment Insurance (EI) premiums (on cash benefits), and income tax on the interest benefits and use the T4 slip boxes 14 & 36 for year-end reporting.