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.
Peterborough District Office Business and General S. Doran Division Client Assistance
Homeowner Residential Rehabilitation Assistance Program
This is in reply to your memorandum of April 13, 1993 in which you requested our comments on the tax treatment of the above type of assistance. We apologize for the delay in our response.
With respect to your query, we have obtained a copy of a pamphlet from the Canada Mortgage and Housing Corporation (CMHC) which explains the Homeowner Residential Rehabilitation Assistance Program (the Program) in broad and general terms. A copy of the pamphlet is attached for your reference.
The Program, which is carried out pursuant to the National Housing Act, is administered by CMHC. In accordance with the Program, a loan under which interest is charged at current rates may be made to an eligible homeowner with respect to his or her house that requires major repair. Whether such a loan is made to a homeowner is dependent upon household income. Loans under the Program are made with respect to the costs of materials, labour, legal fees, finance costs, and building plans and permits. Depending on the household income, a portion of the loan may not have to be repaid (i.e., a forgiveness is involved) where the homeowner continues to live in the house.
Our Comments:
The comments below have been made in respect of property that is not used to earn rental income. We also note that while it may have been useful to review an actual agreement between CMHC and a homeowner, our comments are based on the information set out above.
Although the above information indicates that the Program involves social assistance, it is our general view that the phrase "social assistance payment made on the basis of a means, needs or income test" for the purposes of paragraph 56(1)(u) of the Income Tax Act (the Act) normally involves a payment that is not in the form of a loan. Accordingly, we would not regard a payment made by CMHC in respect of a loan as being a payment that is subject to the provisions of paragraph 56(1)(u) of the Act and related paragraph 110(1)(f) of the Act.
We have also considered whether a forgiveness of debt could be regarded as a social assistance payment described in paragraph 56(1)(u) of the Act. Since it is our view that a forgiveness in respect of a debt results in an extinguishment or partial extinguishment of the debt without any payment being made, it would follow that the amount of a forgiveness of debt under the Program is not an amount which is subject to the provisions of paragraphs 56(1)(u) or 110(1)(f) of the Act.
In your memorandum, you have also referred to the Home Adaptations for Seniors' Independence Program (HASI), where grants, which are considered by the Department to be subject to the provisions of paragraphs 56(1)(u) and 110(1)(f), are made to certain senior citizens to enable them to adapt their homes so that they can continue to live in them as long as possible. In our view, HASI is distinguishable from the Program since grants, rather loans or forgiveness of debt, are involved.
We are also providing you with the following comments concerning the Program:
(a) To the extent that the portion of the loan forgiven can be considered to be in respect expenses which are not in the nature of capital, it is our view that there would be no income tax consequences on the basis that the amount of such forgiveness relates to personal expenses rather than business expenses or expenses incurred with respect to a rental property.
(b) To the extent that a portion of the loan forgiven can be regarded as being in respect of capital expenditures, there would not be any immediate tax consequences although pursuant to paragraph 53(2)(k) of the Income Tax Act, the related amount of the government assistance is to be deducted from the adjusted cost base of the property.
Since the capital expenditures incurred by the homeowner are added to the adjusted base of the property, the above deduction is in reality an offsetting adjustment.
If further assistance is required, we would be pleased to provide our views.
P.D. Fuoco Section Chief Personal and General SectionBusiness and General DivisionRulings DirectorateLegislative and Intergovernmental Affairs Branch
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