If a client has an existing loan from the company used to purchased a house, then will be taking another loan to purchase a house because the other house was sold, should loan #1 needs to get rid off? Thanks!
I think everyone would like to “get rid of” their loans, but for some reason lenders won’t allow it unless you actually PAY them…lol
It would be very strange if the company that gave the first loan was willing to give a second loan when the collateral on the first one has “disappeared”. At minimum I imagine they would roll the first loan into the second one, and issue a new mortgage document for the full amount. But, of course, that is the company’s decision.
If possible, do you have a more idea of what the home purchase loan means, and the tax implications? Thanks!
Well, there are provisions to allow corporations to loan money to their employees so that they can buy a home, but that is a taxable benefit, and there are rules that must be followed.
Other than that, a “home purchase loan” is generally called a mortgage.
Because the client as I mentioned already have a home purchase loan and bought a house again and want to use the so called home purchase loan for the new house.
Different rules for shareholders:
If your client is an employee of the corporation that gave the loan, there’s no answer I can give you - it’s the corporation’s decision whether to give them another loan. The corporation has to calculate the taxable benefit and issue the T4A slips, etc.
The income tax act doesn’t say a person can’t have two loans, if that’s what you’re asking.
The client is the shareholder.
If the shareholder was given the loan just because they are a shareholder, then section 15 applies - all loans to shareholders have to be repaid within one year, or the entire amount becomes a “shareholder benefit” taxed at the highest personal rate. On top of that there is a taxable interest benefit - see the link I posted earlier.
This scheme, which is meant to avoid the correct tax bracket, was exactly the reason for the government to introduce back-to-back shareholder loan rule.