Is there any tax on personal loan amount?

[manlec]

I am a new PR and wish to buy my own house in Ontario but want to avoid taking mortgage. I am planning to get an interest-free loan on personal basis from one of my good friends in Canada for buying the house. He will transfer the amount from his account in a Canadian bank to my account in the same Canadian bank. I have the following queries:

Will this amount be taxable?
Is there any amount limit that I can borrow without being taxed by government?
Is there any time limit I can keep this amount in my account before I use it without being taxed by government?

Thanks for the response.

 

[torontosm]

I am a new PR and wish to buy my own house in Ontario but want to avoid taking mortgage. I am planning to get an interest-free loan on personal basis from one of my good friends in Canada for buying the house. He will transfer the amount from his account in a Canadian bank to my account in the same Canadian bank. I have the following queries:

Will this amount be taxable?
Is there any amount limit that I can borrow without being taxed by government?
Is there any time limit I can keep this amount in my account before I use it without being taxed by government?

Thanks for the response.

This transaction will not be taxable, and there are no time limits. However, I would encourage you to prepare the proper loan documentation in case you are ever questioned by the CRA. Also, the terms of the loan should be at or close to market rates to avoid raising any red flags.

 

[manlec]

I would appreciate comments and suggestions from other experts also regarding my original query.

Thank you

 

[manlec]

Dear Torontosm,

Thank you for your reply. Can you please elaborate more on the "loan documentation". What are the requirements for this?

Thanks again.

 

[Amadan123]

Hello manlec,

Totally agree with torontosm.

With regards to loan documentation, items including but not limited to the following will help:

• loan agreement specifying name of lender and borrower, amounts lent, date and terms of repayment, terms of interest, etc.
• money order and/or cheques showing payment of initial loan and repayment of loan by borrower
• bank statements showing the grant and receipt of the loan in the respective bank accounts

The idea is to substantiate the loan with sufficient documentation such than if any third-party were to peruse the documentation, they would understand the nature and terms of the loan. This, of course, will necessarily benefit you and the lender as well and prevent disputes and disagreements.

Madan Chartered Accountant team
www.madanca.com