23 July 1992 External T.I. 9214485 F - Taxable Benefits Removal Expenses

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.

July 23, 1992

Dear  19(1)

We are writing in reply to your letter of April 14, 1992, wherein you requested our opinion as to whether or not a $200,000 interest free  bridge loan and a $30,000 equity loss payment would be considered to be a taxable benefit to the recipient in the situation described in your letter.

In this regard, you expressed the view that the interest free loan and the equity loss payment would be non-taxable benefits as described in Paragraph 37 of Interpretation Bulletin IT-470R and the relevant section in the "The Employers Guide To Source Deductions".

Our Comments

As discussed during our recent telephone conversation, since we do not have sufficient detailed information to give you a definitive reply to your enquiry, our comments will be of a general nature.

1.     Bridge Loan - $200,000 

     Where an employee is relocated and purchases a new home at the new work location, prior to selling the old home situated at the previous work location, and the employee receives a low interest or interest free loan from the employer to assist in the new home purchase, the Department will not assess a benefit in respect of such bridge financing (up to the equity in the old home) where the loan is only outstanding for the period between the purchase of the new home and the sale of the old home. In addition, the Department would not assess a benefit in situations where the employee receives an interest free loan or mortgage interest subsidy from the employer for the outstanding mortgage on the old home for the period between the purchase of the new home and the sale of the old home.

     In the situation described in your letter, if the value of the employee's old home (the unpaid mortgage plus equity) was equal to or in excess of $200,000 no taxable benefit would be assessed to the employee.  If, however, the value of the old home was less than the amount of the bridge loan, a taxable benefit would be computed at the prescribed rate on the amount by which the amount of the loan exceeded the employee's equity in the old home.

2.     Equity Loss - $30,000

     Where an employee is reimbursed by an employer for an actual loss  incurred on the disposition of the old home, or where an employer guarantees to give the employee an amount equal to the amount by which the fair market value of the old home (as independently appraised) exceeds actual selling price, such amount will not be included in the employee's income.

     In the situation described in your letter, if the $30,000 represented the employee's actual loss on the sale of the old home in that the net selling price was less than the employee's acquisition cost, the amount would not be taxable to the recipient. Similarly, if the net selling price of the old home was at least $30,000 less than the independently appraised value of the old home at the time the move occurred, then the amount would not be included in the recipient's income.  In other words, if the independently appraised value of the old home is at least $211,000, no taxable benefit would accrue to the recipient. If, however, the independently appraised value is less than $211,000 the relevant portion of the $30,000 payment would be included in the recipient's income.

We trust our comments will be of assistance to you.

Yours truly,

P.D. Fuocofor DirectorBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch

c.c.  A. Bissonnette

Director, Source Deductions DivisionJ. ParkesBelleville District Office