T4 Code 36 — Interest-free or low-interest loan

Tax return implications

• The amount is already inside box 14 and inside box 40. Do not add it again anywhere on your return.
• Where the borrowed money was used to earn income, such as buying investments, the deemed interest may be deductible as a carrying charge at line 22100.
• Home purchase and home relocation loans get a ceiling: the benefit is calculated at no more than the prescribed rate in effect when the loan was made, although it drops if the prevailing rate falls below that.
• That ceiling lasts five years. Where the repayment term runs longer, the balance outstanding five years after the loan was made is treated as a new loan and priced at the rate in effect on that date.
• Because the benefit forms part of box 14, it is pensionable and insurable in the ordinary way and feeds boxes 24 and 26.

Common pitfalls & things to check

• The benefit does not disappear because you and your employer agreed the loan was a favour. It is calculated from the prescribed rate regardless of the commercial rate you could have obtained elsewhere.
• Paying some interest reduces the benefit but rarely eliminates it. Unless your rate matches or exceeds the prescribed rate for every quarter, a residual benefit remains.
• The 30-day rule catches people out. A cheque written to your employer in February for the previous year's interest is too late unless it lands inside that window.
• If the loan proceeds went partly to personal use and partly to investments, only the investment portion supports a line 22100 deduction, and you need to be able to trace which is which.

Related T4 boxes