Company’s life insurance premium deductions denied on basis loans were personal loans of principal shareholders

Tax court of Canada | Tax | Income tax | Business and property income

Company took out first loan, life insurance policy was taken out as financing condition, and final payment on first loan was made in 2013. Second loan was taken out and another life insurance policy was acquired as lending condition. Loan was more in nature of credit facility that could be drawn down as required and there was outstanding balance on second loan as of 2012. Company submitted deductions for life insurance expenses for taxation years 2013 to 2015. Minister denied company’s life insurance premium deductions on basis that loans were personal loans of principal shareholders. Company appealed. Appeal dismissed. There were several concerns pertaining to first loan, one of which was that it was indicated that balance outstanding was to be repaid in 2013 and company’s year end took place after that repayment date, which suggested that for 2014 and 2015 taxation years, balance owed to lender was nil. Difficulty with second loan was that shareholder indicated that credit facility was never fully drawn down, which suggested that company only borrowed what was required from time to time and that credit facility was paid back on rolling basis. There was also no evidence of any indebtedness for 2013 to 2015 taxation years – In this case, minimum evidence requirement was not met by company. 

Emjo Holdings Ltd. v. The Queen (2018), 2018 CarswellNat 2452, 2018 TCC 97, Guy R. Smith J. (T.C.C. [Informal Procedure]).

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