If you received interest-free or low-interest loans from your employer, these loans would generally result in a taxable benefit. Certain employee loans do not result in a taxable benefit if they meet specific criteria, including:
Employee loans that do not fall into one of the qualifying purposes above are subject to an imputed taxable interest benefit that is computed at the CRA prescribed interest rate and applies throughout the period the loan is outstanding. If you pay interest on the loan at a rate that is at least equal to the CRA prescribed interest rate, and such interest is paid by January 30 for the preceding calendar year, then the imputed interest benefit does not apply.
Interest paid to your employer on these loans is only deductible to you if the loan is used to earn income from business or property. If the loan is used for personal reasons, the interest is not deductible.
If the interest on the employee loan is not deductible, be sure to pay any interest payable on the loan for 2023 by January 30, 2024, to reduce or eliminate your taxable benefit (for interest payable in 2022, be sure to pay the interest by January 30, 2023). Where the interest on the loan is not paid by January 30, the imputed interest benefit discussed above will apply.
If you have an existing employee interest-bearing loan that was used for one of the qualifying purposes listed above (e.g., home purchase), consider renegotiating the loan with your employer to minimize taxable benefits by “locking in” the loan at a lower prescribed interest rate for a five-year term. The prescribed interest rate currently in effect is 4 per cent. However, given the market’s current high interest rates, it may not be an appropriate time to renegotiate your loan.
Tax Tips 2023