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 mortgage discharge penalties paid by an employer when an employee is required to relocate constitutes a taxable benefit under 6(23).
Position: Not a taxable benefit
Reasons: Mortgage discharge and prepayment penalties are selling costs of the old residence and not amounts paid in respect of financing of a residence.
August 3, 1999
Business Publications Section HEADQUARTERS
Client Services Directorate W. Antle
957-2135
Attention: Claire Robertson
7-991869
Mortgage Interest Penalties Paid by Employer
This is in reply to your email sent to David Duff on June 2, 1999 concerning whether the payment of mortgage discharge penalties by an employer, when an employee is required to relocate, constitutes a taxable benefit from employment under subsection 6(23) of the Income Tax Act (the “Act”).
Subsection 6(23) of the Act reads as follows:
“Employer-provided housing subsidies — For greater certainty, an amount paid or the value of assistance provided by any person in respect of, in the course of or because of, an individual's office or employment in respect of the cost of, the financing of, the use of or the right to use, a residence is, for the purposes of this section, a benefit received by the individual because of the office or employment.”
This subsection refers to “an amount paid or the value of assistance provided by any person…in respect of the financing of…a residence”. There is no distinction made between a new residence or old residence, and no reference is made to the acquisition of a residence. Therefore, the provision may be interpreted as applying to any residence, and all amounts paid by the employer in respect of the financing of any residence should be included in the person’s employment income.
In determining the types of financing costs that are covered by subsection 6(23), the expression “in respect of” is to be given a very broad meaning. In Nowegijick v. The Queen (83 DTC 5041), Mr. Justice Dickson commented that: “The words “in respect of” are, in my opinion, words of the widest possible scope. They import such meanings as “in relation to”, “with reference to” or “in connection with”. The phrase “in respect of’ is probably the widest of any expression intended to convey some connection between two related subject matters”. In our view, mortgage interest paid by an employer in connection with an employee’s old residence should be included in the employee’s income under paragraph 6(1)(a) and subsection 6(23) of the Act because it is clearly in respect of the financing of a residence. The employee may be able to claim the interest cost, to a limit of $5,000, as a moving expense pursuant to new paragraph 62(3)(g) of the Act where reasonable efforts are being made to sell the residence, and it is not rented out, or occupied by the employee or a member of his household.
However, a mortgage discharge penalty can be viewed as a selling cost of the old residence, and not an amount paid in respect of the financing of a residence. For the purposes of paragraph 62(3)(e) of the definition of “moving expenses” in the Act, paragraph 12 of Interpretation Bulletin IT-178R3 includes mortgage prepayment and discharge penalties as selling costs of the old residence, similar to legal fees and real estate commissions. Accordingly, in our view, mortgage discharge penalties paid by an employer in respect of an employee’s required relocation do not fall within the purview of subsection 6(23) of the Act, and would not constitute a taxable benefit to the employee.
R. Albert, C.A.
for Director
Business and Publications Division
Income Tax Rulings and
Interpretations Directorate
Policy and Legislation Branch
