19 June 1990 Ministerial Correspondence 900594 F - Employee Benefit Policy

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.

Dear Sirs:

Re:   Employee Benefit Policy - Paragraph 6(1)(a)

This is in reply to your letter of April 26, 1990, wherein you requested our opinion on the application of section 80.4 of the Income Tax Act (the "Act") where an employer subsidizes an employee's interest costs.

We would comment at the outset that the capacity in which an individual receives a loan or other benefit is a question of fact which can only be determined on a case-by-case basis in light of all of the surrounding facts and circumstances.  Furthermore, subsection 80.4(1) of the Act refers to situations in which "a person or partnership received a loan or otherwise incurred a debt by virtue of the office or employment...".  It is the capacity in which the individual received the loan at the time it was made that determines whether or not it comes within section 80.4(1) of the Act.

Where an employee negotiates a loan from a third party on his own initiative without any involvement of his employer, the fact that the employer may a some subsequent date become involved in that loan by directly or indirectly subsidizing the cost of the employee's loan interest will not render that loan a loan received "by virtue of his office or employment".  In such a situation, the employee would normally be taxed pursuant to paragraph 6(1)(a) of the Act on any benefit enjoyed by virtue of his employer's subsidization of his interest costs.

The fact that a loan is received by an officer or employee or his spouse or by an individual who is to become an officer or employee or his spouse, from a party other than his employer is not necessarily indicative that such loan has not been received by virtue of an office or employment, the Department will take into consideration any involvement or assistance by his employer in obtaining the loan, including

(a)     involvement in negotiation of the loan.

(b)     guaranteeing repayment of the loan principal or interest,

(c)     recommending in writing to the lender that the loan be made,

(d)     agreement in writing before the loan is made, to assist   with the cost of the interest  either by direct reimbursement tot he borrower for all or part of it or by paying such interest directly to the third party lender, or

(e)     providing the individual with a letter of introduction  to a mortgage lender explaining the amount and terms of   the mortgage interest subsidy which the employer will be  making to the employee.

Where a loan was made by virtue of an office or employment and the employer reimburses the employee for the interest cost on up to $25,000 of the loan, the employee would be in receipt of a benefit pursuant to section 80.4 of the Act that is required to be included in computing the employee's income from an office or employment.  Where such a loan also qualifies as a "home relocation loan" within the meaning of subsection 248(1) of the Act, the employee would be entitled to a deduction form income in accordance with paragraph 119(1)(j) of the Act.

We trust our comments are of assistance to you.

Yours truly,for DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch