I’m a sole owner of my incorporated software company with software support and development as the active income. I also have investments as a private lender as passive income, lending out money to real estate investors for short term loans between 8-12%, registered as a mortgage with guarantees. I have 4 or 5 clients usually at a time since these are short term loans ranging from 6 months to 2 years … Maximum loan would be approx. $200,000. Everything is declared and corporate taxes are paid accordingly on this passive income. Can my company lend me money with the same terms and conditions as my private lending clients so I can pay my company mortgage payments instead of a bank or other financial institution ? Basically becoming a client of my own company …
You should book an appointment with an accountant. This is supposed to be a technical forum for accountants, not a free advice forum.
Someone should tell Taxcycle. 
This is also a forum for tax preparers, which my sister and are. If you can’t answer the question just refrain from writing anything out of respect for everyone else.
I was wondering if anyone had a precedence with the CRA in a similar matter. This question shouldn’t be confused with a share holder using the advantage of borrowing money from their company that can’t exceed 2 financial year ends at the CRA prescribed rate, which presently stands at 3% if I’m not mistaken.
It doesn’t matter how you phrase it, the bottom line is a shareholder has taken money out of his company without paying tax. Go to CRA and search for shareholder loans. It has to bear interest at the prescribed rate and must be repaid before the second year end down the road. Otherwise, it’s income at the date of withdrawal and taxed as a dividend. Can’t be deducted by the company. You might argue that the shareholder took the loan as an employee, but there’s 2 problems with that. In the case of a shareholder/employee, the default for any auditor is shareholder. Second, employee loans are extremely restrictive as to their purpose. Paying out existing debt is not legit.
i guess he just got his free tax advice.
We understand the definitions of what the CRA says but its not like my client is paying off a loan with money from his company, then this is clear as crystal. This is more like the sole proprietor wants to use his own services just as his clients and instead of financing with RBC for example, he decides to finance with his own company just as his other clients. There’s no advantage to the owner as a client using his company or using RBC, its just that the money goes into his operations rather than the competition …
I agree with you that the auditors will always take the simple approach and consider this a advantageous loan as a share holder and not as a loan to an employee …
I was just wondering if anyone has come across this situation before with a precedence that can be used as a defence argument. I’m sure that many sole owners have done this one way or another but I don’t want to give bad advice to any clients and I always take the prudent approach. Unless there’s a precedence on this matter I won’t suggest getting financing from his company as he proposes …
Get off your high horse and stop pestering hard working people
Unlike pursuits like boating or golfing and the like, tax is an intensely legal matter, with real legal consequences, and thus miscellaneous posts on the internet don’t really assist in any way to specific legal matters like tax.
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“for tax preparers, which my sister and are”
The better solution, then, is to personally have your sister review the specific applicable sections of the Income Tax Act and the financial details of the corp and investor.
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“Can my company lend me money with the same terms and conditions as my private lending clients so I can pay my company mortgage payments instead of a bank”
… Doesn’t seem to add up - suggest that an accountant should look at that in detail. (The corporation has both a Lawyer and an Accountant?)
Funny how the perspective went from first person… Hmm… Maybe work hard on your software business (your expertise) and hire a professional to do the tax matters. If it’s your sister, that’s okay… You’ll get more mileage and earn more that way, rather than wasting your time. Joe gave you a great answer!
Well, belligerence is certainly one way to get free tax advice that we all hope you will take. Here’s mine:
Go ahead and take out as much money as you want, reporting same as shareholder loans. Make sure the amount is large. Please. For sure do not contact an accountant or follow the rules in the Income Tax Act, because you clearly are special.
Thank you.
(Personally I refuse to provide free tax advice to posters here, as the (originally stated) intention of the forum is for discussion among professionals about both tax and the software made by TaxCycle. Let 'em go to Reddit if they want free advice. Just my opinion…but someone always answers…)
I’m confused by your case facts. Take my advice with a grain of salt but it sounds like you have two corporations. Is this correct? I’m not sure because you mention sole-proprietor. You’re also all over the place about whether this is for yourself or a client etc.
If these are two corps both 100% owned by you, then these two corps can lend money to each other without you as an individual being involved. The loans should be made under arms-length terms (so for your lending company, the same terms used for your arms-length clients), and all the legal documents should be in place at the outset of the loan. Additionally, interest would need to be paid on the loan. If the ownership is more vertical (you own lending corp, lending corp owns software corp), the loan can still happen but the interest on the loan would require a T5 issued by software corp each year.
Everyone else here is right though. Your posts are a bit vague and scattered. If your sister is an accounting (assuming CPA?) then why aren’t you asking her? If she’s not a tax specialist, I’m certain she would have someone in her network that is that could also provide some pro-bono advice.
Thanks @jeremy1. Your response is helpful and correct. Your response is also in line with what this forum can be about. If I am unsure about something, it is good to be able to go to the forum and do a search for possible help from prior posts.
The responses that are just about shaming the poster are not helpful and do not build up the person that is responding. The main point is usually correct in those shaming type posts but noone benefits - least of all the person responging.
I believe the problem isn’t helping another professional…it’s helping an individual who wants free tax advice INSTEAD of going to a professional.
We are always happy to correspond and assist other pros…for free…but the OP appears to be a taxpayer who would be as well served asking a general question on Reddit. And better served by actually PAYING a professional to advise him. Again, just my opinion. And not much different than someone at a party asking me a tax question. I give 'em my card and say “Call me and arrange an appointment…and I’ll answer and invoice you.”
While I do agree with your point, I like the way @jeremy1 responded. My apologies @SmallBizGuy. And I do appreciate your helpful responses too.
No apology required. 
Discussion is always good.
Jeff, IMO, you should examine Subsection 15(2) of the ITA. This is a quick search of the information, https://taxpage.com/articles-and-tips/tax-treatment-of-shareholder-loans-under-subsection-152/
However, for some light reading you can go straight to the ITA here: Income Tax Act
Another suggestion is to use the DTS (Dedicated Tax Service). We have found it to be very useful when looking into unusual and complex situations.
Good luck
Just to wade in with the discussion around whether this post is appropriate for the intended audience for this forum…
This forum is for accountants and tax preparers or all levels. However, it is possible for a non-accountant to wander on here and seek advice. You have no obligation to provide it. Gently recommending they seek out a professional accountant is appropriate, but please keep it kind.
Also, if you think a question shouldn’t be asked here, the best thing is to ignore it completely. The more people who post and reply, the hotter a topic becomes and it sits at the top of the front page. Just don’t comment and it will die on the vine and disappear more quickly.
Elizabeth, thanks for that.
With respect, you could also limit the forum to users of the software or potential users of it…just a thought.
There are…literally…dozens of sites where non-pros can go to seek “free advice”. Most established pros avoid these unless they are trolling for new business.
There are, though, VERY FEW locations where we, as pros, can talk at a professional level, about tax, without the need to explain what ss 67(2) of the ITA means and what its implications could be…(yes, I chose a non-existent ss!)… unless it’s educational to another pro. We do all have to learn somewhere.
Depends, I guess, on what you’re looking to accomplish with the forum and how robust you want the pro audience to be on it. Again, just my opinion.
Something for Xero and TaxCycle to think about. 
(This should probably be in a separate thread…)
I agree. It’s nice to have a forum where it IS professionals that use the same software. There are VERY few places like this and we find it valuable as professionals. Having people seeking free tax advice, when it’s obvious from their posts that they’re not professionals, just makes me (and I’m sure a few others) less likely to interact overall.