14 December 2012 External T.I. 2012-0459981E5 - Proration of Monthly Ceiling Amounts

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: Whether an employer may prorate the monthly ceiling amount in determining the value of a housing benefit received by an employee?

Position: No.

Reasons: It is the administrative practice of the CRA not to permit an employer to prorate the monthly ceiling amounts by the number of days in the month an employee does not occupy the premises.

XXXXXXXXXX
2012-045998
C. Underhill

December 14, 2012

Dear XXXXXXXXXX

Re: Proration of Ceiling Amounts for a Housing Benefit

We are writing in response to your email of June 21, 2012, concerning the valuation of short-term housing provided to employees. More specifically, you have enquired whether an employer may prorate the monthly ceiling amount when determining the value of a housing benefit received by an employee.

In the situation you described, the employer provides rent free or reduced rent housing to its employees. The employer owns the house and condo where employees are expected to stay. Sometimes an employee will reside in the premises for only a portion of the month and occasionally; more than one employee may reside in the same accommodation. The employer is using the ceiling amounts provided in Guide RC4054 – Ceiling Amounts for Housing Benefits Paid in Prescribed Zones, to determine the value of the housing benefit received by employees.

Our Comments

For the purposes of this letter, we have assumed that the employees do not qualify for the special work site exclusion under subsection 6(6) of the Income Tax Act (Act). Generally, where an employee is provided with rent free or reduced rent housing, a taxable benefit is assessed pursuant to paragraph 6(1)(a) of the Act. Employers are responsible for reasonably estimating the value 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.

Guide RC4054 provides the monthly ceiling amounts for different types of accommodation. These ceiling amounts are used to determine the maximum value of a housing benefit that an employer may report for an employee residing in prescribed zones without developed rental markets. It is not the administrative practice of the CRA to allow an employer to prorate the monthly ceiling amounts where an employee resides in the accommodation for only a portion of the month. However, an employer may prorate the monthly fair market value of the rent if the employer determines that the proration better reflects the value of the short-term accommodation provided. Where it is determined that the fair market value of the housing benefit is higher than the value determined using the ceiling amounts, the employer is required to report the latter value, minus any rent paid by the employee.

As noted in Guide T4130, Employer's Guide -Taxable Benefits and Allowances, there may be special circumstances where it is appropriate to reduce the value of a housing benefit for suitability of size and loss of privacy and quiet enjoyment. Guide T4130 further provides that a housing benefit may be reduced if more than one employee occupies the same accommodation.

We trust these comments will be of assistance.

Yours truly,

Nerill Thomas-Wilkinson, CA
Manager
for Director
Business and Employment Division
Income Tax Rulings Directorate
Legislative Policy and Regulatory Affairs Branch