2 September 1998 Internal T.I. 9804327 - HOUSE PURCHASED FOR BUSINESS- TAXABLE BENEFIT

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 house provided to employees and shareholders constitutes a taxable benefit.

Position:

Question of fact as to whether individual who is both a shareholder and an employee receives a benefit and whether they receive it in their capacity as shareholder or employee. If received by virtue of employment, benefit could be excluded if location is a special work site.

Reasons:

Wording of paragraph 6(1)(a) includes lodging. However, the provisions of subsection 6(6) may apply.

							September 2, 1998
	Edmonton Tax Services Office			HEADQUARTERS
	Verification and Enforcement Division		Roxane Brazeau-LeBlond, CA
(613) 957-8953
	Attention:  Andrea Hill
							980432

Taxable Benefit on Purchase of a House for a Business

This is in reply to your memorandum faxed on February 18, 1998 requesting our views as to whether a corporation’s shareholders and employees enjoy a benefit as a result of the corporation providing them with a house to be used for accommodations and office space.

We understand that the corporation operates a XXXXXXXXXX, where the shareholders also live. The XXXXXXXXXX business require more and more of the business to be carried out in XXXXXXXXX . In an effort to reduce the costs of accommodations, the corporation purchased a $XXXXXXXXXX house in XXXXXXXXXX to provide accommodations and office space for employees when they are in XXXXXXXXXX on business. The employees are not charged any rent for the use of the house.

Our comments

Whether individuals who are both shareholders and employees of a corporation enjoy a benefit in their capacity as a shareholder or as an employee is a question of fact that must be determined in light of all the surrounding circumstances. In making this factual determination, a comparison of the individuals’ situation with that of non-shareholding employees would be relevant.

The Income Tax Act (the “Act”) refers specifically to benefits derived from employment as including board and lodging. This includes board and lodging regularly furnished as a perquisite of the employment, as is common for hotel employees and domestic and farm help. (This does not include reimbursed or employer paid expenses of an employee in travel status.) When an employer provides a house, apartment, or similar accommodation to an employee rent-free or for a lower rent than the employee would have to pay someone else for such accommodation, the employee receives a taxable benefit pursuant to paragraph 6(1)(a) of the Act. The value placed on this benefit should approximate its fair market value.

However, by virtue of subsection 6(6) of the Act, an exception to the above rules is made in respect of board and lodging received in some circumstances by an employee whose duties are performed at a special work site. In order to qualify for the exclusion of a board and lodging benefit, the individual must have received a benefit in respect of those expenses incurred at a special work site, a location at which the duties performed by the employee were of a temporary nature, if the employee maintained at another location a self-contained domestic establishment as the employee's principal place of residence. That residence must be, throughout the period, available for the employee's occupancy and not rented by the employee to any other person, and a sufficient distance away that the employee could not reasonably be expected to have returned home on a daily basis. The period that the employee is required by his or her duties to be away from the employee's principal place of residence or to be at the special work site, must be at least 36 hours for this exception to apply.

Where a house is made available for the personal use of shareholders in their capacity as shareholders, a benefit under subsection 15(1) of the Act is generally considered to have been conferred on the shareholder. The calculation of the amount or value of the benefit is usually based on the fair market rent for the property minus any consideration paid to the corporation by the shareholder for the use of the property.

We would note that the situation you have described is similar to the factual situation in Paul’s Hauling Ltd. V. The Minister of National Revenue; and Paul E. Albrechtsen v. The Minister of National Revenue 79 DTC 167. In that case, the corporation was doing business in both Winnipeg and Calgary. The shareholder resided in Calgary. The corporation rented and furnished an apartment in Winnipeg for overnight accommodations of its president (the sole shareholder), and business associates and for purposes of office work requiring a tranquil atmosphere. In that case, the Tax Review Board noted that the apartment was used only for the business purposes intended. The Board determined that the apartment was not a benefit received by the president by virtue of his office or employment, nor a benefit or advantage conferred on him as a shareholder.

Roberta Albert, CA
for Director
Business and Publications Division
Income tax Rulings and
Interpretations Directorate
Policy and legislation Branch