21 July 2000 Ministerial Correspondence 2000-0035394 - REIMBURSEMENT OF HOUSING LOSSES

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: Whether reimbursement of a particular housing loss would be required to be included in income under paragraph 6(1)(a) as determined under paragraph 6(20)?

Position: No

Reasons: The situation involved a move to, and commencement of work in, a remote location many years before under an equity protection program, under which the company will protect the employee from any loss of his equity caused by a general reduction in residential property values. Provided the original move meets the criteria in the definition of an eligible relocation, the new housing loss rules will only apply to amounts paid after December 31, 2000. Accordingly, the old rules apply to payments made before January 1, 2001, such that payments under an equity protection arrangement should not result in a taxable benefit.

		2000-003539
XXXXXXXXXX 	Karen Power, CA
(613) 957-8953
Attention:  XXXXXXXXXX 

July 21, 2000

Dear XXXXXXXXXX:

Re: Reimbursement of Employee Housing Losses

We are writing in reply to your correspondence of July 11, 2000, and various telephone conversations (Power/Dath/XXXXXXXXXX) concerning the taxation of benefits received by XXXXXXXXXX (the "Company") employees under the Company's equity protection program (the "Program").

Our understanding of the scenario is as follows:

• The employer is located in XXXXXXXXXX ("Location A"), XXXXXXXXXX. Many of the employees were transferred into Location A in order to commence employment with the Company's XXXXXXXXXX.
• The Company has offered an equity protection program (the "Program") for relocation assistance since XXXXXXXXXX. The Program indicates that the Company will protect the employees from any loss of their equity in their residence caused by a general reduction in residential property values. The Program would have been in place when many of the employees commenced work at Location A.
• XXXXXXXXXX many of the employees are being relocated to other areas. Those employees who have incurred losses on the sale of their homes will be provided with compensation under the Program.

You have requested our views on whether the compensation received under the Program would result in a taxable benefit to the employees.

Our comments:

Where taxpayers wish to obtain confirmation as to the income tax consequences of proposed transactions which they are seriously contemplating, they should submit a written request for an advance income tax ruling. The procedures for requesting an advance income tax ruling are outlined in Information Circular 70-6R3 dated December 30, 1996, a copy of which is enclosed for your information. Where the particular transactions are completed, the enquiry should be addressed to the relevant Tax Services Office. However, we are prepared to provide the following comments which are of a general nature and are not binding on the Canada Customs and Revenue Agency.

Paragraph 37 of Interpretation Bulletin IT-470R (Consolidated) states that when an employer reimburses an employee for a loss suffered by the latter in selling the family home upon being required by the employer to move to another location or upon retirement from employment in a remote area, the amount so reimbursed is not income of the employee.

Whether Location A would be considered a remote place is a question of fact. We have not previously defined "remote" for purposes of IT-470R (Consolidated) and each location would have to be considered on a case by case basis. Nevertheless, in our view the word "remote" without a term of reference takes on the meaning of "isolated" or "remote in relation to all other places". While a guideline based on distance would be appropriate in most cases, there may be situations where other relevant factors should also be considered in making such a determination.

New subsection 6(21) of the Income Tax Act (the "Act") defines a housing loss basically as an actual loss or decline in value of the house, and subsection 6(19) of the Act requires the employee to include such amounts in income, unless it is an eligible housing loss. An eligible housing loss is defined in subsection 6(22) of the Act to be a housing loss in respect of an eligible relocation. An eligible relocation is defined in subsection 248(1) of the Act and is essentially a relocation to enable the taxpayer to be employed at a new work location, both the taxpayer's old residence and the taxpayer's new residence are located in Canada; and, the new residence is 40 kilometers closer to the new work location than is the old residence. Where an eligible housing loss is paid to an employee, one half of the excess of the amount that exceeds $15,000 must be included in income pursuant to subsection 6(20) of the Act.

Any amount paid in respect of a housing loss, or an eligible housing loss where the employee commenced work at the new work location after September, 1998, must be included in income where the amount was paid after February 23, 1998. However, for eligible housing losses where the employee commenced work at the new work location prior to October 1998, no amount is required to be included in income if it is paid before the year 2001.

Compensation under the Program Prior to January 1, 2001:

In our view, provided that the criteria in the definition of eligible relocation were met by an employee on their move to a remote area and that the employee began employment at the remote area prior to October 1998, any housing loss as described in paragraph 6(21) of the Act on a house that was purchased on the expectation that any future loss in value would be compensated under a housing loss policy, would be an eligible housing loss as described in subsection 6(22), and any amount paid by the employer before January 1, 2001 in respect of that eligible housing loss would not be subject to the provisions in subsection 6(19) to 6(22) of the Act.

In addition, in our view, the position stated in paragraph 37 of IT-470R (Consolidated) will apply to ensure that no amount will be required to be included in the income of such an employee pursuant to paragraph 6(1)(a) of the Act as a result of the receipt of such an amount before January 1, 2001.

Compensation under the Program After December 31, 2000:

In our view, provided that the criteria in the definition of eligible relocation were met on the employee's move to the remote area and the employee began employment at the remote area prior to October 1998, any housing loss as described in paragraph 6(21) of the Act on a house that was purchased on the expectation that any future loss in value would be compensated under a housing loss policy, would be an eligible housing loss as described in subsection 6(22).

In addition, if the house is designated according to subsection 6(22), any amount paid by the employer after December 31, 2000 in respect of that eligible housing loss would be a benefit to be included in income under paragraph 6(1)(a), as determined under paragraph 6(20) of the Act.

We trust our comments will be of assistance to you.

Yours truly,

John Oulton
For Director
Business and Publications Division
Income Tax Rulings Directorate
Policy and Legislation Branch

cc. Bill McCloskey

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