28 January 1991 External T.I. 9015655 F - Deemed Benefit where Loan Received by Virtue of Employment

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.

5-901565

Dear Sirs:

Re:  Request for Technical Interpretation Subsections 80.4(1) and 115(1) of the Income Tax Act (the "Act")

We are writing in response to your letter dated July 12, 1990 wherein you requested our views on the application of the above-noted provisions of the Act to the following situation:

1.     

2.     24(1)

3.     

4.     

In your view, based on your reading of paragraph 5 of our Interpretation Bulletin IT-421R, subsection 80.4(1) of the Act will continue to apply to the provisions of the 24(1) Further, it is your opinion that the Benefit will be taxable in Canada, pursuant to subparagraph 115(1)(a)(v).

You consider the above results to be inequitable and suggested the following alternative remedies.

1.

2.     24(1)

Our Comments

The above situation is a factual one, based on actual transactions.  Assurance as to the tax consequences of completed transactions should be obtained from your District Taxation Office.   We are, however, willing to provide you with the following general comments.

Subsection 80.4(1) of the Act deems a person to have received a benefit where the person receives a loan (or incurs a debt) by virtue of his office or employment.  The continued employment of the person is not a prerequisite to the application of subsection 80.4(1).   The issue, therefore is whether the taxability of the benefit is affected by the employee or former employer having become a non-resident.  In our view it is not.  It is sufficient that the loan be made by virtue of the office or employment and that an amount is still owing under the loan.

Subsection 2(3) of the Act is the charging provision pursuant to which non-resident persons are taxed in Canada.  It provides that the taxable Income of a non-resident who was employed in Canada at any time in the year or a previous year shall be determined in accordance with Division D of the Act.

Section 115 in Division D of the Act prescribes the manner in which taxable income earned in Canada by non-residents is to be calculated.  Subparagraph 115(1)(a)(i) of the Act requires the Non-resident to include, in computing his taxable income earned in Canada for a taxation year, his income "from the duties of offices and employment" performed by him in Canada".

Subsection 6(9) of the Act provides that a benefit under subsection 80.4(1) of the Act is included in income for the year as income from an office or employment, which would be included in the taxable income earned in Canada of a non-resident under subparagraph 115(1)(a)(i) provided that the benefit arose by virtue of an office or employment in Canada.  Based on Hurd v. The Queen (1981), 81 DTC 5140 (FCA), it is not necessary for the non-resident person to be performing duties of employment in Canada in the year in order for an amount to be included under subparagraph 115(1)(a)(i).

Remedies

There will be no further Benefit if the Employee repays the Loan. This is the only method acceptable to the Department whereby the Benefit will be avoided.

Your comments regarding the interpretation of 115(2)(e)(i) are not relevant because the amount of the Benefit would, in our view, be included in the income of the Employer by virtue of subparagraph 115(1)(a)(i) rather than 115(1)(a)(v) as you have assumed.

The foregoing comments are given in accordance with the practice referred to in paragraph 21 of Information Circular 70-6R2 dated September 28, 1990 and are not binding on Revenue Canada, Taxation.

Yours truly,

for Director Reorganizations and Non-resident Division Rulings Directorate Legislative and Intergovernmental  Affairs Branch