22 April 1988 Income Tax Severed Letter 5-5247 - []

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.

XXXX J. Szeszycki (613) 957-2130

APR 22 1988

Dear Mr. XXXX

Re: Taxable Benefit - Low Interest Loan

Your letter of November 6, 1987, requesting an adjustment to your 1983, 1984 and 1985 returns, was forwarded to this office for reply. We apologize for the delay encountered in responding. You have asked for confirmation as to whether the benefit you derive by virtue of the low interest loan made available to you through your employer is indeed taxable in light of the decision reached by the Federal Court - Trial Division in the Sheldon Segall v. Her Majesty the Queen, 86 DTC 6486 (the "Segall case") under circumstances which appear similar to your own.

Although the circumstances involved in the Segall case may appear, on the surface, to be similar to your own case, there are some critical differences that should be noted. In 1976, Mr. Segall, an air traffic controller, was in receipt of a payment which included an "Accommodation Differential", a payment that was intended to compensate for the increased housing cost encountered upon his move to Ottawa from Montreal. The Department viewed the payment as a benefit received by virtue of employment and therefore taxable under 6(1)(a) and (b) of the Income Tax Act. The Court however concluded that the circumstances surrounding the decision to transfer employees was largely political (the effect of a potential labour dispute involving air traffic controllers) and therefore not related to his actual employment. Consequently, the Court found that the payment received did not constitute a benefit from employment.

Although the Department did not appeal the decision in view of the unique circumstances of the Segall case, it is not prepared to accept the decision as a precedent with respect to some of the principles involved, particularly the implication that matters of labour relations or acceptance of a transfer to retain one's position are extraneous to employment.

Furthermore, at the time of the payments to Mr. Segall section 80.4 of the Income Tax Act had not yet been incorporated. That section (effective for the 1979 and subsequent taxation years) specifically provides for the computation of a benefit where an employee receives a loan, by virtue of his employment, at a rate of interest that is below the prescribed rate.

From the information you have provided it is our view that the benefit derived from the receipt of a low interest loan through your employer, XXXX is indeed taxable and has been correctly reported on your returns.

Yours truly,

ORIGINAL SIGNED BY ORIGINAL SIGNÉ PAR ROBERT H. JOYCE

for Director Small Business and General Division Specialty Rulings Directorate Legislative and Intergovernmental Affairs Branch