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Old 01-10-2019, 09:34 AM   #1
belsarius
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Hi all,

At my company we have a few employees with long term interest-free employee loans. I haven't been involved with them other than recording the entries so I assumed they were being completed correctly. We were asked to forgive one of the loans and when we advised HR that it had to be recorded on the T4 it caused a lot of push back that we just need to "write if off".

This made me dig deeper and realize that the taxable benefit from the interest may not have been recorded on previous loans. The explanation I got was that employees are told there is a benefit and they should report it themselves with their return, but I can't seem to find any bulletin or regulation that allows this, only that the employer is responsible for reporting it on the T4.

Can someone help me clarify?

Thanks!!
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Old 01-10-2019, 10:11 AM   #2
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Old 01-10-2019, 10:15 AM   #3
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Debt forgiveness is just income, generally... so they'd probably have to just take the whole principal of the loan as income this year. I think it's s.80 or so?

As for the benefit, I'm pretty sure it is T4'd. If they're shareholders as well as employees, it may raise some s.15 issues for you as well.

This is one of those things where we need an accountant.
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Old 01-10-2019, 10:18 AM   #4
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it sure feels like an interest free loan would generate some type of taxable benefit
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Old 01-10-2019, 10:20 AM   #5
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Yeah, there's a benefit and should be T4'd. PM Sent.
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Old 01-10-2019, 10:23 AM   #6
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Quote:
Originally Posted by calf View Post
Yeah, there's a benefit and should be T4'd. PM Sent.
Basically this.
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Old 01-10-2019, 10:38 AM   #7
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Yup for sure there is a benefit, I am just running into pushback about if we report it or if we can push that responsibility to the employee. The answer I got was "the last controller worked at EY and she said it was fine to make them sign a letter that they take responsibility for reporting the benefit", but I just don't think this is correct. Unfortunately all of my accounting training is reporting and management side and I haven't touched tax implications in years.
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Old 01-10-2019, 10:44 AM   #8
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Quote:
Originally Posted by belsarius View Post
Yup for sure there is a benefit, I am just running into pushback about if we report it or if we can push that responsibility to the employee. The answer I got was "the last controller worked at EY and she said it was fine to make them sign a letter that they take responsibility for reporting the benefit", but I just don't think this is correct. Unfortunately all of my accounting training is reporting and management side and I haven't touched tax implications in years.
No. Strictly speaking the onus is upon the employer to report the income on the T4 as a taxable benefit.

Making the employee sign some letter is swell and all, but the employer is going to want to write that loan off and there has to be a corresponding item for it, you cant just trust that the employee is going to do it.

By the employee defaulting on an employer loan it has transitioned from a 'loan' to 'employment income' or a form of bonus, the employer has to record it as such.
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Old 01-10-2019, 10:51 AM   #9
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Thanks everyone!

And thanks for the confirmation Locke. That is basically how I was explaining it to them, it didn't make sense to me either to pass the onus to report to the employee. I know enough to realize that someone knows more, but I just couldn't get my head around it, regardless of where the previous controller worked.
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Old 01-10-2019, 12:01 PM   #10
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Came to help, but help was already provided. Still left satisfied with the Kramer reference.
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Old 01-10-2019, 12:29 PM   #11
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Quote:
Originally Posted by mrkajz44 View Post
Came to help, but help was already provided. Still left satisfied with the Kramer reference.
Lots of accountants on this board.
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