What Business Owners Need to Know

Drawing and retaining quality talent is arguably more important to the success of your business than any other factor. This is especially true in today’s highly mobile and competitive labour market. The ability to work from anywhere coupled with widespread changes in employee expectations mean that many of the best employees know that they are in the driver’s seat. This leaves employers looking for unique ways to differentiate their offerings in order to attract and keep top talent. 

One (often overlooked) incentive that can set you apart is the option for corporations to offer employees low-interest-rate, home purchase loans as part of their incentive packages. Finding a home in today’s high-priced real estate market is increasingly difficult. This makes home purchase loans highly attractive to potential employees, especially if you’re courting talent from out of town or overseas. And helping employees and their families become established in the community is a great way to guard against turnover.

However, there are strict regulations and guidelines, established by the Canadian Revenue Agency (CRA) as part of the Income Tax Act . These regulations must be followed when setting up such arrangements in order to remain compliant and avoid trouble down the road for you and your employees. If you would like help setting up an arrangement such as this, please feel free to give us a call. We’d be happy to walk you through it.

Benefits and restrictions

• Allows corporations to attract and retain top quality talent
• Allows potential employees to obtain more favorable terms than are often available through traditional lending institutions
• Must follow all rules and statutory regulations as they apply to both individuals and corporations under Subsection 15(2.4) of the Income Tax Act, including proper documentation.

Conditions and exemptions

It is possible for shareholder-employees to extract funds from their corporation, incentivizing shareholders for investing in the corporation. However, the standard regulations state that the loan or debt will be included in the income of that person or partnership for the taxation year in which the loan was made. In order for employee home purchase loans to be considered exempt from the above regulation it is important that the following conditions are met:

1. The home purchase loan must be made as a result of the recipient’s employment.
2. At the time the loan is made bona fide arrangements have to be established to allow for repayment of the loan within a reasonable time.

Trying to decide if Home Purchase Loans are the right fit for you?

The rules and regulations can be difficult to parse and making a mistake can be costly for you and your employees. That’s why the tax experts at CPA Plus are here to help. Give us a call anytime and we’d be happy to chat with you about this and any other options you are considering including in your incentive program.