24 September 1998 External T.I. 9816395 - RENT-FREE HOUSING OF A SECURITY TENANT.

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: Tax treatment of rent-free accommodation provided to a security tenant.

Position: There is likely an employee-employer relationship. Accordingly, rent-free accommodation is an employee benefit. The amount of the benefit if the fmv for equivalent accommodation. This amount may be reduced to take into account loss of privacy or quiet enjoyment.

Reasons: Generally, where certain benefits, such as board and lodging are provided to an "employee," an employer-employee relationship is considered to exist.

XXXXXXXXXX 	J. Gibbons
		5-981639
Attention:  XXXXXXXXXX 

September 24, 1998

Dear XXXXXXXXXX:

We are replying to your letter of June 11, 1998, in which you inquire about the tax treatment of rent-free accommodation provided to a “security tenant.” You have asked us to presume that there is no employee/employer relationship.

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 submitted in the manner set out in Information Circular 70-6R3. The following comments are, therefore, of a general nature only.

We suggest that you consider the comments on page 9 of the enclosed “Employer’s Guide to Payroll Deduction,” under the paragraph entitled “Employer-employee relationships.” Generally a person is considered to be an employer when that person provides certain benefits, such as board and lodging, to its employees. Further, this paragraph indicates that an employer-employee relationship exists if the employer is in a position to control and direct the person or people who perform the services. Accordingly, our comments are based on the existence of an employer-employee relationship, in spite of your request that we presume the contrary. Nonetheless, if you have further questions in this regard, you can seek a ruling from Revenue Collections at your local tax services office.

When received from an employer, rent-free housing is taxable pursuant to paragraph 6(1)(a) of the Income Tax Act. The employer is responsible for reasonably estimating the amount of such benefit, which would normally be considered to be the fair market rent for equivalent accommodation had the employee rented from a third party less any rent paid. In this regard, we refer you to paragraph 6 of Interpretation Bulletin IT-470R, “Employees’ Fringe Benefits,” a copy of which is attached. However, the fair market value so determined may be reduced in extenuating circumstances to account for loss of privacy and quiet enjoyment (such as necessarily being available to other tenants and repairmen outside normal working hours). The amount of reduction available would be based on the facts and circumstances surrounding each case (with consideration being given to the frequency and degree of loss of privacy and quiet enjoyment).

We trust that these comments will be of assistance.

Yours truly,

J.F. Oulton, CA
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate

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