20 June 1985 Income Tax Severed Letter A-1433 - [850620]

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.

P.D. Fuoco Tel. (613) 993-7295

June 20, 1985

Dear Sirs:

This is in reply to your letter of April 29, 1985 is which you request our opinion with respect to the tax treatment of funds advanced to an employee in the circumstances set out below.

When relocating to a new work location at the request of his or her employer, an employee may receive a temporary advance in the amount of the equity in the employee's residence at the former location. The purpose of the advance is to provide the employer with a down payment on the purchase of a residence in the new work location and would be given to the employee just before the closing date of such purchase. The advance would be repayable to the employer on the earlier of the date that the former residence is sold to a third party or the date that the former residence is taken over by the employer (which latter date would occur within a limited time period). The employee would be required to use all reasonable efforts to sell the former residence.

It is our view that, in the situation outlined above, technically, section 80.4 of the Income Tax Act (the Act) would apply to the advances. However, administratively, the Department takes the position that interim financing received by an employee in the circumstances set out above will not give rise to a taxable benefit under either of paragraph 6(1)(a) or section 80.4 of the Act. We take this position on the basis that the interest expense on money borrowed by the employee in the same circumstances from a third party lender would represent a relocation expense to the employee, the reimbursement of which would fall within the ambit of the comments in paragraph 34 of Interpretation Bulletin No. IT-470 , a copy of which is enclosed.

On the other hand, we are of the opinion that, in the event the employer fails to repay the advance on the earlier of the two dates mentioned in the second preceding paragraph, section 80.4 of the Act will apply to the advance from the date of which the employee received the advance. If the advance is to continue as an outstanding debt it could not be said to have arisen as a consequence of the relocation since the reason for its existence, i.e. the locked-in equity of the unsold residence, is extinguished on the disposal of the residence. Non-payment of the advance on the agreed-to date makes it evident that the equity in the former residence was intended to be used by the employee for a purpose other than the purchase of the residence in the new work location.

We trust our comments will be of assistance.

Yours truly,

for Director Non-Corporate Rulings Division

c.c. W.J. Massel, Director Accounting & Collections Division