Question

1. On January 1 of the current year E received a loan of $200,000 from her employer. The principle is repayable after 5 years. The loan bears interest at 1% per annum which is paid monthly. The prescribed interest rate for the first quarter of the year was 4% and 5% for the remainder of the year. E used the loan to assist with the purchase of a home. What amount is included in E’s employment income for tax purposes in the current year?

$ purposes in the current year

Answer 1

Solution:

Given data,

On January 1 of the current year E received a loan of $200,000 from her employer. The principle is repayable after 5 years. The loan bears interest at 1% per annum. The prescribed interest rate for the first quarter of the year was 4% and 5% for the remainder of the year. E used the loan to assist with the purchase of a home.

Now solution:

The amount to be included in E's employment income for tax purposes in the current year :

= [ $200,000 x (4% - 1%) x 1/4 ] + [ $200,000 x (5% - 1%) x 3/4 ]

= [ ($200,000 x 3%) x 1/4 ] + [ ($200,000 x 4%) x 3/4 ]

= ($6,000 x 1/4) + ($8,000 x 3/4)

= $1,500 + $6,000

= $7,500

$7,500 Purposes in the current year

$7,500 Purposes in the current year