25 January 2011 External T.I. 2010-0382541E5 - Taxable Benefits - Rent Free Housing

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.

Principal Issues: Is there a taxable employment benefit to an employee when an offsetting service is provided to the employer?

Position: Question of Fact. Likely Yes

Reasons: The determination of who is the primary beneficiary is ultimately a question of fact that must be determined on a case-by-case basis. In the situation described it appears that the Employee is the primary beneficiary and in receipt of a taxable employment benefit determined as the fair market value of the free accommodation.

XXXXXXXXXX
									2010-038254
									Brenda White
									519-645-5454
January 25, 2011

Dear XXXXXXXXXX :

Re: Taxable Benefits - Rent Free Housing

This is in response to your letter of September 28, 2010 wherein you asked for clarification on the taxable status of rent-free accommodation provided by an employer.

In the situation you described, an employee works 10-hour shifts, four days a week at a somewhat isolated work location. At the employee's option, rather than undertake the lengthy commute between his home and work during the four day cycle, he has access to accommodation at the work premises. The employee is not charged for this accommodation or for the utilities services provided. You have indicated that the employee's after-hours presence on-site provides the premises with some security, in the form of a vandalism deterrent.

Written confirmation of the tax implications inherent in particular transactions is given by this Directorate only where the transactions are proposed and are the subject matter of a request for an advance income tax ruling submitted in the manner set out in Information Circular 70-6R5, "Advanced Income Tax Rulings", dated May 17, 2002. This Information Circular and other Canada Revenue Agency ("CRA") publications can be accessed on the internet at http://www.cra-arc.gc.ca. Where the particular transactions are complete, the inquiry should be addressed to the relevant tax services office, a list of which is available on the "Contact Us" page of the CRA website. Although we cannot comment on your specific situation, we are prepared to provide the following comments in respect of the issues that you raised. Please note, however, that these comments are of a general nature only and are not binding on the CRA.

Subject to certain listed exceptions, paragraph 6(1)(a) of the Income Tax Act (the "Act") requires that the value of any benefits received or enjoyed by a taxpayer in the year in respect of, in the course of, or by virtue of an office or employment be included in the taxpayer's income from employment. This general rule applies to employer-paid accommodation. As you have noted, subsection 6(6) of the Act provides an exception in limited circumstances for employment at a special work site or remote work location. However, given that you have concluded that the foregoing exceptions are inapplicable in the facts of this situation; our comments will not address these provisions.

The courts and the CRA generally accept that when an amount is paid in respect of something that is primarily for the benefit of the employer, there is no taxable benefit to the employee, notwithstanding that there may be an ancillary benefit to the employee. Whether the economic benefit from employer-provided accommodation is primarily for the benefit of the employer or the employee is a question of fact to be determined on a case-by-case basis.

The CRA's general position on the taxation of employee benefits is discussed in Interpretation Bulletin IT-470R "(Consolidated) - Employees' Fringe Benefits". Paragraph 6 states that 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. The employer is responsible for reasonably estimating the amount of such a 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 by the employee.

The CRA publication T4130, "Employers' Guide -Taxable Benefits and Allowances" also discusses the taxation of benefits provided by an employer to an employee. Chapter 3, "Other Benefits and Allowances" notes that an apartment superintendent would be included as an employee in receipt of a taxable benefit in respect of rent-free accommodation. We have also similarly opined that the value of accommodation provided to a don in a university residence would be taxable. Notwithstanding that in both of those situations, certain services are provided which are beneficial to the employer, the CRA has indicated that the fair market value of the board and lodging should be included as employment income. The situation you described appears comparable to that of a superintendent of an apartment block or a student don in a university.

We note that the Guide also describes special circumstances where, depending on the facts of the situation, it may be appropriate to reduce the value of a housing benefit, for either the suitability of size or the loss of privacy and quiet enjoyment. Any reduction of a benefit must be reasonable in the circumstances.

We trust these comments will be of assistance.

Yours truly,

Renée Shields
for Director
Business and Partnerships Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch