13 March 2000 External T.I. 2000-0000775 - EMPLOYEE HOUSING REPURCHASE

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the CRA.
Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle de l'ARC.

Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department.

Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.

Principal Issues: Whether reimbursement of a particular housing loss and a subsequent repurchase would be required to be included in income under paragraph 6(1)(a) as determined under paragraph 6(20)?

Position: No

Reasons: The situation involved a move to, and commencement of work in, a remote location many years before under a housing plan by which an employee bought a house under a buy-back guarantee. Provided the original move meets the criteria in the definition of an eligible relocation, the new housing loss rules will only apply to amounts paid after December 31, 2000. Accordingly, the old rules apply to payments made before January 1, 2001, such that payments under a buy-back arrangement, without retirement from employment in a remote region, should not result in a taxable benefit. Repurchase by an employee at fair market value should not result in a benefit.

		2000-000077
XXXXXXXXXX 	Karen Power, CA
(613) 957-8953
March 13, 2000

Dear XXXXXXXXXX:

Re: Employee Housing Repurchase

We are writing in reply to your letter of January 7, 2000, requesting our comments on whether, in a particular scenario, the sale of an employee's home to his/her employer and a subsequent repurchase would give rise to a taxable benefit.

Our understanding of the scenario is as follows:

• The employer is located in a remote area. Certain employees purchased homes under a buy-back agreement when they originally moved to the remote area.
• The employer has made an offer to employees, who currently own homes under the buy-back agreement, to repurchase their home from the employee for the employee's cost. The employee may then repurchase the house at its fair market value, which is approximately one third of the original cost. If this offer is accepted by an employee, the employer ceases to have any further obligations under all previous housing agreements.

You have requested our views on whether the above transactions would result in a taxable benefit to the employees who accept the employer's offer and who then repurchase the house at fair market value.

Our comments:

Written confirmation of the tax implications inherent in particular transactions are given by this Directorate only where the transactions are proposed and are the subject matter of an advance ruling request. The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R3 dated December 30, 1996 (copy attached). Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments which are of a general nature and are not binding on the Department.

Paragraph 37 of Interpretation Bulletin IT-470R (Consolidated) states that when an employer reimburses an employee for a loss suffered by the latter in selling the family home upon being required by the employer to move to another location or upon retirement from employment in a remote area, the amount so reimbursed is not income of the employee.

New subsection 6(21) of the Income Tax Act (the "Act") defines a housing loss basically as an actual loss or decline in value of the house, and subsection 6(19) of the Act requires the employee to include such amounts in income, unless it is an eligible housing loss. An eligible housing loss is defined in subsection 6(22) of the Act to be a housing loss in respect of an eligible relocation. An eligible relocation is defined in subsection 248(1) of the Act and is essentially a relocation to enable the taxpayer to be employed at a new work location, both the taxpayer's old residence and the taxpayer's new residence are located in Canada; and, the new residence is 40 kilometers closer to the new work location than is the old residence. Where an eligible housing loss is paid to an employee, one half of the excess of the amount that exceeds $15,000 must be included in income pursuant to subsection 6(20) of the Act.

Any amount paid in respect of a housing loss, or an eligible housing loss where the employee commenced work at the new work location after September, 1998, must be included in income where the amount was paid after February 23, 1998. However, for eligible housing losses where the employee commenced work at the new work location prior to October 1998, no amount is required to be included in income if it is paid before the year 2001.

Sale of Home to the Employer Prior to January 1, 2001:

In our view, provided that the criteria in the definition of eligible relocation were met by an employee on their move to a remote area and that the employee began employment at the remote area prior to October 1998, any housing loss as described in paragraph 6(21) of the Act on a house that was purchased from an employer under a housing agreement in which the employer agreed to repurchase the home for the same price, would be an eligible housing loss as described in subsection 6(22), and any amount paid by the employer before January 1, 2001 in respect of that eligible housing would not be subject to the provisions in subsection 6(19) to 6(22) of the Act. In addition, in our view, the position stated in paragraph 37 of IT-470R (Consolidated) will apply to ensure that no amount will be required to be included in the income of such an employee pursuant to paragraph 6(1)(a) of the Act as a result of the receipt of such an amount before January 1, 2001.

Sale of Home to the Employer After December 31, 2000:

However, in our view, provided that the criteria in the definition of eligible relocation were met on the employee's move to the remote area and that the employee began employment at the remote area prior to October 1998, any housing loss as described in paragraph 6(21) of the Act on a house that was purchased from the employer under a housing agreement in which the employer agreed to repurchase the home for the same price, would be an eligible housing loss as described in subsection 6(22), if the house is designated according to that subsection, and any amount paid by the employer after December 31, 2000 in respect of that eligible housing loss would be a benefit to be included in income under paragraph 6(1)(a) as determined under paragraph 6(20) of the Act.

Repurchase of Home from the Employer at Fair Market Value:

In our view, no amount should be required to be included in the income of an employee pursuant to paragraph 6(1)(a) of the Act as a result of the repurchase of his/her home from their employer at fair market value.

We trust our comments will be of assistance to you.

Yours truly,

Roberta Albert, CA
For Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

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