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 a taxable benefit arises where government-owned housing is rented to employees of other government departments, retirees or to members of the general public?
Position: Employees of other government department and retirees - It is a question of fact, most likely yes. General public most likely no.
Reasons: See response.
XXXXXXXXXX
2014-051862
C. Underhill
June 26, 2014
Dear XXXXXXXXXX:
Re: Government-owned housing
We are writing in response to your e-mail of January 23, 2014, in which you asked about the tax consequences of renting government-owned housing. More specifically, you have asked whether a taxable benefit arises where government-owned housing is rented to employees of other government departments, retired government employees ("retirees"), or members of the general public.
In the situation described, your department rents government-owned housing to its employees, employees of other government departments, retirees, and, in limited circumstances, members of the general public. Generally, your department charges all tenants the same established fair market value ("FMV") rental rate for the area in which the individual resides. However, in order to reduce the vacancy rate in a particular area, your department charges a different rental rate to all tenants in this particular area. It is your view that the rental rate charged in this particular area is below FMV.
This technical interpretation provides general comments about the provisions of the Income Tax Act ("Act") and related legislation (where referenced). It does not confirm the income tax treatment of a particular situation involving a specific taxpayer but is intended to assist you in making that determination. The income tax treatment of particular transactions proposed by a specific taxpayer will only be confirmed by this Directorate in the context of an advance income tax ruling request submitted in the manner set out in Information Circular IC 70-6R5, Advance Income Tax Rulings.
Paragraph 6(1)(a) of the Act includes in an employee's income the value of any economic benefit received or enjoyed in respect of his or her employment, unless specifically excluded by another provision of the Act. The statutory exceptions listed in subparagraphs 6(1)(a)(i) to (vi) of the Act do not apply to your situation. For the purposes of this letter, we have assumed that the individuals do not qualify for the special work site or remote work location exclusions under subsection 6(6) of the Act.
Generally, where an employer provides housing at a rental rate below FMV to an employee, a retiree (or an individual not dealing at arm's length with the employee or retiree), the employee or retiree will be considered to have received a taxable benefit under paragraph 6(1)(a) of the Act in respect of, in the course of, or by virtue of his or her office or employment. If an employee of another government department has access to the below-FMV rental rate by virtue of his or her employment, he or she will be considered to have received a taxable benefit even though the benefit is not provided by his or her employer. The employer (i.e., the department providing the housing) is responsible for reasonably estimating the value of the benefit, which would normally be considered to be the value for equivalent accommodation rented from a third party (i.e., FMV) less any rent paid. It is a question of fact whether the rent charged in a particular area is less than FMV.
Where it is determined that the rental rate charged to members of the general public is below FMV, the benefit received will be included in income if it is considered income from a source under section 3 of the Act (e.g., employment, business, or property). An employment relationship does not appear to exist between your department and the members of the general public who are renting the government-owned housing. Unless the government-owned housing is rented on a means, needs, or income test, it is our view that any benefit received by members of the general public likely will not be income from a source, and therefore, not taxable under the Act.
We trust these comments will be of assistance.
Yours truly,
Nerill Thomas-Wilkinson, CPA, CA
Manager
Business and Employment Income Section
Business and Employment Division
Income Tax Rulings Directorate
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