Loan to capital treatment

This discussion explores the income tax treatment of loans taken by proprietors, shareholders, or partners and subsequently invested as capital. For proprietary concerns, the interest may be allowed as a business expense. For partners and shareholders, adjustments can be made through increased remuneration, though it cannot be directly offset against dividends. Interest expense is generally allowable against dividend income or income from mutual funds, capped at 20% under Section 57 of the Income Tax Act.