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.
September 17, 1999
Vancouver Island Tax Services HEADQUARTERS
Individual Client Services C. Tremblay
957-2139
Attention Nadine Smith
991632
Taxability of amounts received under the
B.C. Government Expanded
Homeowner's Reconstruction Loan Program
This is in reply to your facsimile of June 10, 1999, concerning the tax consequences of the interest free loans the provincial government has undertaken under the B.C. Government Expanded Homeowner's Reconstruction Loan Program.
Generally, the program is aimed at helping homeowner's reconstruct and pay for their leaky condominium or homes where the building envelope has deteriorated sooner than expected due to defective construction. Homeowners who do not have enough equity in their home to qualify for a standard loan and cannot afford the monthly loan payments of a standard loan to pay for repairs are eligible for government assistance.
Under the program, the applicant must file a repair certificate, a mortgage confirmation certificate and supporting material. There is no maximum amount if the homeowner meets the eligibility criteria. To be eligible, an individual must own a leaky condominium or home where the building envelope has deteriorated sooner than expected due to defective construction and the homeowner must not have investments that could be used for repairs ($10,000 in liquid assets, pension plans and RRSP funds are exempt from this calculation). If the homeowner meets the eligibility criteria, a non-interest loan is available for the full amount of repairs required to repair the building envelope. Upon receipt of the Certificate of Approval and Certificate of CMHC Insurance, generally, the financial institution that holds the first mortgage will make out the loan. A mortgage will be registered against the title of the home as security and will rank in priority after all existing mortgages on the home. The homeowner will be required to make principal repayments based on a 5 year term and the loan will mature on the same day as the first mortgage. During this period, the Homeowner's protection office will pay the loan interest directly to the financial institution. A tax slip will be issued for the interest paid on the homeowner's behalf by the Homeowners protection office. Upon maturing the outstanding balance on the loan must be refinanced by combining it with the first mortgage loan if the homeowner can qualify for such refinancing, if not, then the loan can be renewed for a further term of up to five years.
The income tax treatment of government assistance is based on specific rules in the Income Tax Act (the "Act"). The treatment differs depending on whether the government assistance was received in respect of business or personal losses.
Generally, the program is aimed at individuals whose leaky condominium or home needing repairs is their primary residence. Accordingly, where the property is a principal residence, within the meaning of section 54 defining "principal residence" of the Act and occupied by the homeowner as his or her primary residence, the interest paid by the Homeowner's Protection Office would not be included in income (unlike certain social assistance payments that are included in income and deducted back off to arrive at taxable income, ie. paragraph 11O(1)(f) of the Act). However, there may be individuals who rent the condominiums and report the income as rental income. If the condominium or home is used to earn rental income, subsection 12(1)(x) of the Act or subsection 9(1) of the Act will require the government assistance (ie. the interest payments that are paid on behalf of the individual) to be included in income. As a corresponding amount may be allowed as a deduction from the rental revenue, on account of interest expense, there should generally be no tax consequences.
For your information a copy of this memorandum will be severed using the Access to Information Act criteria and placed in the Legislation Access Database (LAD) on the Department's mainframe computer. A severed copy will also be distributed to the commercial tax publishers for inclusion in their databases. The severing process will remove all material that is not subject to disclosure, including information that could disclose the identity of the taxpayer. Should your client request a copy of this memorandum, they can be provided with the LAD version, or they may request a copy severed using the Privacy Act criteria, which does not remove client identity. Request for this latter version should be made by you to Jackie Page at (819) 994-2898. The severed copy will be sent to you for delivery to the client.
Jim Wilson
Manager
Business, Property and Employment Section II
Business and Publications Division
Policy and Legislation Branch
Income Tax Rulings and
Interpretations Directorate
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© Her Majesty the Queen in Right of Canada, 1999
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© Sa Majesté la Reine du Chef du Canada, 1999
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