20 February 1992 Internal T.I. 9135036 F - Exgratia Payment

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.

Subject: Ex Gratia Payment by Employer On the Death of an Employee 

We are replying to the memorandum of December 17, 1991 from Mr. E. Hammond of your division in which we were asked for our comments on a situation where an employer made an ex gratia payment following the death of an employee.  The circumstances of this situation have been set out in a submission made by the Belleville District Office which was enclosed.

24(1)

With respect to the above situation, one of the issues raised by your Division is whether the employee received the loan "by virtue of his office or employment" for the purposes of subsection 80.4(1) of the Income Tax Act (the Act).  In addition, this requirement is relevant for the purposes of the definition of "home relocation loan" in subsection 248(1) of the Act (paragraph (c) of this definition refers to a loan described in subsection 80.4(1)).  It is your view that the employee did receive the loan by virtue of his employment because the employer was involved with the granting of the loan on the basis that the employer guaranteed the payment the payment of interest.  As a consequence of this view, it has been indicated that the reimbursement of interest would represent an amount described in subparagraph 80.4(1)(b)(i) of the Act and that a deduction could be claimed under paragraph 110(1)(j) of the Act on the basis that the loan satisfied the definition of "home relocation loan in subsection 248(1)of the Act.

The memorandum from your Division has also indicated that for an amount to be considered as a "death benefit" pursuant to the definition of this term in subsection 248(1) of the Act, it must be "in recognition of the employee's service in an office or employment".  Since the definition does not refer to "long service", the ex gratia payment in the case at hand would satisfy this definition.

Our Comments

We agree with your Division's view on the issue of whether the loan in question was received by the employee by virtue of his office or employment and that the reimbursement of interest is described in subparagraph 80.4(1)(b)(i) of the Act.  On the basis of information set out above, it also appears that the loan satisfies the definition of "home relocation loan" in subsection 248(1) of the Act provided the designation requirement in paragraph (d) thereof is satisfied.

We also agree with the view of your Division that the payment should be treated as a death benefit for income tax purposes.  In this regard, it seems apparent that the reimbursement of interest to the employee is clearly related to employment services because the employee moved at the request of the employer.  As a consequence, it appears reasonable to conclude that the employer is motivated to make the payment in recognition of services rendered prior to death.

As a further comment, the information provided to us indicates that a proposed transaction is involved.  Since paragraph 21 of Information Circular 70-6R2 indicates that a taxpayer should request an advance income tax ruling when such a transaction is involved, you may wish to advise the District Office accordingly.

Should further technical assistance be required, we would pleased to provide our views.

B.W. DathDirectorBusiness and General DivisionRulings DirectorateLegislative and IntergovernmentalAffairs Branch