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.
Please note that the following document, although believed to be correct at the time of issue, may not represent the current position of the Department. Prenez note que ce document, bien qu'exact au moment émis, peut ne pas représenter la position actuelle du ministère.
SUBJECT: RENT REDUCTIONS AS A RESULT OF INTEREST FREE LOANS SECTION: 20(1)(c), 9(1)]
XXX 913253
C. Tremblay
(613) 957-2744
Attention: XXX April 9, 1992 Dear Sirs:
Re: Rent reductions received as a
result of interest free loans
This is in reply to your letter of November 20, 1991, regarding rent reductions received by tenants as a result of interest free loans to the landlord.
Our Comments
Rent reductions received as a result of interest-free loans by tenants are generally subject to taxation. Receipt of a free or rent-reduced rental accommodation in exchange for an interest free loan is considered to be a barter transaction. In essence the tenant gives up interest income from his loan in return for a reduction in his rent. where a non-profit corporation's proposed housing unit program requires the making of an interest free loan in exchange for reduced rental payments, the rent reduction would be subject to tax in the tenant's hands. For the tenants, the interest received in the form of reduced rent is taxable whereas the rent itself is a non-deductible personal outlay.
Whether or not the landlord is a non-profit corporation or a taxable entity, the results are similar. In our view, there should be no adverse income tax considerations to a financial institution but that will depend on the facts of the particular situation.
The above comments are only expressions of opinion on the application of the Income Tax Act to the hypothetical example given and as such should not be construed as advance income tax rulings, nor are they binding on the Department.
Yours truly,
for Director
Financial Industries Division
Rulings Directorate
Legislative and Intergovernmental Affairs Branch
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© Her Majesty the Queen in Right of Canada, 1992
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© Sa Majesté la Reine du Chef du Canada, 1992
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